Get Rich Education

Keith opens with a provocative time-versus-money question: would $100 million be worth instantly aging ten years?

He examines Jeff Bezos's views on success and housing affordability, then connects supply, demand, and inflation to current home prices and rents.

Keith also reviews housing-price forecasts through 2030 and breaks down how appreciation, cash flow, loan paydown, and other factors can shape an investor's returns.

He explains why asset ownership matters and how real estate investing may create more choices over how people spend their time.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. Time versus money. Would you accept $100 million if it instantly made you 10 years older? Also, forecasts. What will the next three years look like for the housing market today on Get Rich Education? For years, I've sent listeners to Mid South Home Buyers in Memphis, and for years, I've heard the same thing back. Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock, and Dallas, with its classic renovations and now brand new construction. For the first time in years. There's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years. It's called the triple five: 5% property management for five full years, half their standard fee, and Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the Forever Five. That's 5% management for as long as you own the property plus special cash pricing. With 6200 homes under management, Mid South is the place to turn for turnkey real estate. Book your free investment strategy [email protected]. That's midsouthhomebuyers.com.

Speaker 1 1:31

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 1:47

Welcome to GRE from Newport, Rhode Island, to Newport, Oregon, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich Education. Here I am again, more slackjaw than a patient in a dentist's chair, but showing up another week anyway. Around here, we don't live below our means; we grow our means. Build wealth without sacrificing your life today. I've got a big existential question for you: Would you accept $100 million if it instantly made you 10 years older. A hypothetical offer for you here, and we often discuss time versus money trade-offs. So that is, you get to choose one of two options: option A, stay exactly as you are today, or B, receive $100 million, but instantly become 10 years older. If you're 25, now you're 35. If you're 50, now you're 60. And I suppose to make the detail clear for you, your body ages 10 years too. Everyone else stays the same age, and you don't get to experience those 10 years in between. The money is yours immediately, though. Which option do you choose? I mean, take a moment. This is more interesting than it first appears. With the 100 million bucks, you could wipe out bad debt. It could remove stress from your life. You could take care of your family. You could travel almost anywhere, and you could just kind of inform your boss that your next meeting has been like permanently canceled. You could buy a beautiful house or several 100 rental houses.

Keith Weinhold 3:40

Hey, I know my audience. You could fund causes you believe in and give the people that you love opportunities they never would have had otherwise. I mean, how great would that make you feel? $100 million is a tempting offer, but the price is 10 years. You'd lose 10 years of birthdays, conversations, adventures, and just ordinary Tuesday mornings that you'd never get to experience. You might be trading away some of the years when you're healthiest and most able to enjoy that money. But on the other hand, if financial stress is weighing on you, then 100 million could dramatically improve the years that you have left. But if you chose A, staying as you are now, think about what you just did. You turned down $100 million to stay at your current age and in your current situation. You might not have a $100 million net worth now, but you just decided that the years ahead of you are worth more than that offer, and you know what that means. This means that your life is worth over 10 million bucks per year. So you just put a high value on your life. Yeah, quite. The appraisal value that you just gave yourself. All right. Well, so far this has been fun, but now comes the harder question: Are you spending your time like you believe that each year of your life is worth $10 million? Now, this doesn't mean every minute you spend has got to be productive. If this exercise is making you realize that your life is worth more than $10 million a year, essentially, then a slow morning, a good conversation, or a simple walk outside. It means asking yourself something else, though. Who owns your time, and how much choice you have over it? Because for a lot of people, now the answer is your employer, your calendar, and your bills. Now, there's no wrong answer here. Option A: Stay as you are. Option B: You instantly receive $100 million, and you're 10 years older. Now, to an 18-year-old, oh, you probably haven't learned how to make much money yet. So, therefore, $100 million seems enticing and seems impossible. But yet, when you're 18, to instantly be 28, I mean, that sounds unfathomably old. Now, I did something that surprised me. I asked this question to an 80-year-old woman, an elderly woman. I mean, you would think. I mean, I thought she would certainly want to stay her age and take option A. Surprisingly, she was leaning toward option B. So she'd be 90 and have $100 million, but I also know that she really never learned how to make much money, and therefore maybe that's why she says this: a time versus money trade-off like this. That's one reason that we invest in income-producing real estate that pays you five ways simultaneously.

Keith Weinhold 7:04

The goal is to build assets that can help support your life without requiring you to trade even another hour of work for every dollar you earn. It does take effort, capital, and patience with real estate, but over time, more income from real assets can mean more options, and options are valuable. You might choose to keep working. I mean, I enjoy what I do, and you might feel the same. The difference is that you get more freedom to decide what you work on when you work and when you take a day off or take 100 days off. The goal sure isn't to wait until you have $100 million to enjoy your life. It's to build enough freedom to enjoy more of it along the way. You have to be an owner and an investor. See, because here's what's kind of crazy: if you said you would rather stay your same age and refuse the 100 million dollars, then what you're doing is massively valuing your time over money.

Keith Weinhold 8:17

But yet, at the same time, if you work for a salary or a wage, well, then you're doing the opposite of that. You're valuing the money, and you're trading away your finite time for what you're saying you'd rather have less of the money. That's the real conundrum here. That's the paradox. That's the rub. Well, what solves it? Profiting that occurs even when you're not involved. That condition is made for you when you are an owner and an investor. Before we're done today, I'll give you a concrete solution that will solve this time versus money enigma for you. Now, which one would I choose? Well, I don't think you're going to be surprised. I would rather stay 10 years younger and forego the 100 million, and that's largely the product of being a longtime real estate investor and having a pretty high awareness of the wide palette of opportunities available. Those opportunities are the same resources that I share with you here, and while we're talking about wealth building, Jeff Bezos recently had some thought-provoking remarks about collectivism versus free markets, and he talked about real estate too. So he talks about success and also about housing. Let's listen in to Bezos, the founder of Amazon and Blue Origin, as he's interviewed by Bret Baier. I don't think it's right to equate success with villainy. This is less than three minutes in length, and then I'll come back to comment.

Jeff Bezos 9:53

They've been taught this whole kind of oppressor oppressed framework, and that success is villainy. Success. Is not villainy. You know, you can you can be a billionaire if you start a hamburger stand. You have 10 people and it works really well. And you open a second one and you open a third one. Now you're employing 30 people and then you open, you know, 10 more and so on. Pretty soon you have 1000 hamburger restaurants and you are a billionaire. There's a real story, by the way, is with chicken tenders. It's the raising cane. You know, this is how it works. There's nothing wrong with making unbelievably good chicken that people love, and it doesn't make him a bad person. Why is socialism taking off in some quarters? Well, I think there are a couple of things. One, we do have real affordability problems. So people look at the cost of housing, for example, and it's very expensive. And so you can't pretend that there are no problems. So you know, young people do look; they look at the cost of housing and they think, "Gosh, I'm going to have to live two hours out of town. I can't possibly live close to my job." I don't think we should underestimate the problems, but we should also look at what the real solutions are. Housing is a good example because it's a very important example, but it's a place where a lot of the government intervention that's happened has been counterproductive. And instead of work on the real solution, it's very common for you know in the case of housing, for certain politicians to point at landlords and say this is the fault of greedy landlords, this isn't what's going on. Housing is a simple supply and demand situation. It's econ 101, and if you put in place government programs that subsidize demand and constrain supply, you are going to get high prices, and that's what many municipalities do. If you can look at a counterexample, which is Austin, where over the last 10 years they've implemented many policies designed to make it easier to build houses, and they have housing prices going down in Austin.

Jeff Bezos 11:55

So some politicians are governing correctly on this issue, but many are not. And I would say when you're in the polling booth, and you're thinking about who you're going to vote for, think about this: if there's a politician who's picking villains and pointing fingers, that probably means they don't have a solution. Because if they had a solution, instead of blaming somebody, they would be working on the solution. I'll tell you, if there's somebody at Amazon or Blue Origin or Prometheus, somebody at one of my companies, an executive at one of my companies, and every time they came in the meeting, instead of working on a root cause and a root fix and a real solution to the problem, all they did was point fingers and blame people. We'd exit them very quickly. Those people wouldn't be in our company for long.

Keith Weinhold 12:38

The government has probably done more to stoke housing demand than housing supply. Printing trillions, things like streamlined FHA lending requirements, higher mortgage loan limits, a $200 billion mortgage bond purchase initiative this year. It all stokes demand and prices. Don't blame the landlord for that. When currency creation explodes, well, then the grocer, the gas station, and the landlord sometimes get called greedy. Now that is true in some cases, but the government is the root cause of the inflation, and we are still feeling the aftereffects here several years after COVID, when people were paid to stay home, so nothing got produced except more money. Look, the definition of greed is a selfish desire to possess more money or power than what's deserved. But if you're taking on risk and you're applying ambition in order to be a producer for society. Well, then you do deserve a commensurate level of success. I am anti-greed. Greed is not the same as a reasonable profit or even a somewhat handsome profit if you're serving society well. They are the thoughts that the Bezos clip evokes. Shortly, I'm going to discuss the future of housing prices. We're going to look at the next three years, but first, what's happening now? Home prices are up another 1.7 percent annually, rising to 432,900. $1,900. This is per the NAR's freshly released q3 numbers for the national median existing single-family home. And depending on the analyst outlet that you're looking at, some measures show more than 1.7% appreciation, and some less. Of course, not every area has experienced this, but per the NAR again, 78% of metro areas have seen annual home price increases. Prices rose fastest in the Northeast, up 4%; Midwest, up 3.6%; the South, up just 1%; in the West, they fell six tenths. Above 1%. Here's what's interesting, you know. Often over time, the fastest home price growth occurs where there's the most population growth or employment expansion. Okay, like they are some common reasons. Not this time, although AI-fueled San Francisco does lead the nation with 14.7% home price appreciation, but many of the fastest appreciating markets aren't growth stories at all, and it's not even a story about where they're building the least and constraining supply. Do you know what the factor is for the most home price appreciation in this era? The answer is it's where prices are affordable, like Appalachia, the Midwest, and the Deep South. And then much of Florida saw home price declines last year, but in the latest quarter, nearly all Florida markets exhibit home price gains. It's also noteworthy that in this cycle, mortgage rates hit their low right before the Iran War eight to nine months ago. Now that higher rates have settled in, you know we've really got a read on how that's affected home prices. That condition has seasoned, and prices keep rising anyway, although still pretty slowly. Yes, that's despite all these doomsday predictions that seem to be the ones that can dominate financial media. I mean, it's just remarkable that so many people consume this when those things are almost always wrong. Now, going ahead, I don't think there's any reason to expect a sharp drop in either inflation or mortgage rates, as long as this triple-headed inflation monster looms. Yes, the inflation triple threat continues, and that is wars, tariffs, and massive AI spending. Those activities keep both inflation and mortgage rates somewhat elevated.

Keith Weinhold 17:04

Also, what that does is it puts an ever higher floor beneath real estate prices because it keeps the replacement cost buoyant. But due to an affordability constraint, no matter how hot the economy gets, I do not see how national home price appreciation could hit double digits anytime soon. There's virtually no scenario for that. CPI inflation is currently 3.7%. So at a home price appreciation level of almost 2%, although it's stable, you know that's about as exciting as watching a mortgage amortize. Now, back in December of last year, just like I do every December, I released GRE's home price appreciation forecast for this year, and my figure forecast was 2%. And I used this same exact NAR median existing home figure that I'm sharing with you now, so it looks like the prognostication is going to be spot on or pretty close. And of course, next month is when I'll release the forecast for next year's appreciation number. What about rents? Single-family rents are up 2% year over year.

Keith Weinhold 18:17

That is the sixth consecutive month of faster rent growth, although it's still not that high, and that figure is greater in high-end rentals and less on the low end. This is per totality's single-family rent index, and then apartment rents they are barely growing. One-bedroom units are up five tenths of 1%. Two-bedroom units grew seven tenths of 1%. That's per Zumper's national rent report. Not so scintillating on the rent growth, but as I'll discuss later today, you'll see you don't need blistering appreciation to get a strong total ROI. The bottom line here is that home prices keep appreciating with no end in sight, but they are not surging with rocket boosters. So let's restrain the applause. Affordability is what is having its moment. Hey, what we do here at GRE is all human, no AI.

Keith Weinhold 19:18

This show is hosted by a real human, our investment coaching is with a real human, and our "Don't Quit Your Daydream" newsletter is written by a real human. Me, our weekly newsletter it has had a lot of impact lately, if I do say so myself. Besides charts and figures that really shape your view of the world as a real estate investor. In last week's letter, for example, I shared two websites where you can read reviews about real estate syndicators, and those reviews are written by verified investors. They are good vetting resources that I gave you there. Robert Kiyosaki's home is listed. For sale. I sent you a link to photos of that. All kinds of need to know and sometimes just interesting to know resources in our letter. It is chock full of the good stuff, no fluff, and it's not written by a robot. You can get the GRE letter free at greletter.com. Forecasts for the next three years in the housing market. Next, I'm Keith Weinhold. You're listening to Get Rich Education. Let me ask you something: If you've worked hard to build wealth, is your money positioned to actually support your goals? A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. In full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call or text family to 66866. That's family to 66866. What if you got your mortgage loans the same place I get mine? You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone, because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your pre-qual and even chat directly with President Caeli Ridge while it's on your mind. Start at ridgelendinggroup.com. That's ridgelendinggroup.com.

Richard Duncan 22:04

This is Richard Duncan, publisher in Macro Watch. Listen to Get Rich Education with Keith Weinhold, and don't quit your daydream.

Richard Duncan 22:22

Welcome back to Get Rich Education. I'm Keith Weinhold, and home prices should climb between now and 2030. That's not what I say. This is the result of when Fannie Mae asked 100 vetted housing experts where prices are headed next, and I'll tell you how much appreciation is expected, and we have had a number of those 100 Fannie Mae experts here on the show with us over the years. The expected cumulative home price change between now and 2030, okay, it's been divided up into the most pessimistic 25% of these Fannie Mae tap experts. The second group is all experts, and finally the most optimistic 25%. The most pessimistic group says just 7% cumulative appreciation between now and 2030. Pretty weak. All experts average out to nearly 15% appreciation, and then the most optimistic quartile forecast almost 23% appreciation, 22.7. So let's look at the middle figure, 15% over the next three or so years. Okay, that figure would probably outpace inflation, although not by that much, so near 5% per year.

Keith Weinhold 23:45

All right, at 5% annually, let's take a look at how this would factor in for real estate investors like us because it gets spicier in a hurry. Let's approximate your realistic total return on say an income property purchase of 250k today. Let's look at your year one ROI. Well, rather than just a 20% down payment, meaning 50k, we'll say you're really investing 60k once we add in your closing costs. Although it would probably be a little less than that. All right, 5% property price growth at five to one leverage. That is a 25% return on your amount invested from appreciation alone, but not quite because of your closing costs. It's just 21%. Add to that your cash on cash return. We'll say it's a new build, 250k property, and this is aided by your builder's mortgage rate buy down to 5.99%, a common buy down level today. Well, this gives you another 4% cash flow on top of the 21% leverage appreciation. Thirdly, we've got that tenant made principal pay down. That is another 4% for your return on amortization. Then your basket of tax benefits, another 3%, and finally inflation profiting on your 200k mortgage. You multiply that by your 3.7% CPI. That is another 12% return, and there you go, just like that. Your grand total is a 44% projected total rate of return, even when the market has been somewhat lethargic, like it has. Well, let's say though that there's a disappointment, and you only get 3% annual appreciation for the next few years. That's kind of in the pessimistic camp of the Fannie Mae experts. Well, in that case, we would still be looking at about a 34% total ROI in year one. Now, if you're new to this, I mean, just hearing that number on the surface, the 44% total, that would sound unrealistically high, or like you've got to be taking a high-flying risk. That's what you would think if you did not see how we just got there. In fact, before I ever invested in real estate, I would have kind of dismissed a figure like that is nonsensical or irrational, and your actual number won't be exactly that. It's going to be based on factors like how much real estate appreciates in the local market that you own in, and the inflation rate, and your tenant occupancy rate, and more.

Keith Weinhold 26:38

But it could very well be higher than that, because around here we focus on owning in the investor advantage markets, and also we are in more of a buyer's market today than we've been in in years. So you might get in at a price that's lower than the amount that the property gets appraised for. That's like an instant ROI as well, but that is certainly not a condition that you can count on. It's just nice when it happens. But yeah, buyers have more of an ability to negotiate today than they did even a year ago. Now, Realtor.com is a platform that mostly produces news and information on the primary residence market, but twice a year they publish their investor report, and their latest one was just published. It showed that among investors, small investor purchases are comprising a higher amount of activity than they had previously. And what they do is they define a small investor as those that own fewer than 10 properties, so between one and nine properties. Well, that proportion has grown from 46% 12 years ago to 66% today. More small investor activity as compared to all investors, but in this era, you need to be more selective than you were five years ago, and five years ago, I mean that's when the value of seemingly every property shot up dramatically. Today, find a seller in an investor advantaged market, usually one that's going to give you a concession too. And now this was kind of funny, you know how virtually nobody, like nobody in society, is comfortable with being referred to as either a rich person or a poor person. Either one of those conditions, those monikers engender discomfort. Everyone wants to say that they're middle class in order to sound relatable. I mean, a billionaire with three yachts, you know, they somehow want to stretch and call themselves upper middle class.

Keith Weinhold 28:51

If someone will admit to owning a lake house, oh, they're really quick to revert to the mean and say, "Yeah, but hey, I still shop at Costco, right? So nobody wants to be rich or poor. Well, I had to laugh a little when I was recently listening to a financial presentation, and I found it interesting that the speaker used a euphemism for poor people. Rather than calling the group poor, he referred to them as a group that are asset light. That's a new one to me, but yeah, it's been more apparent that at perhaps more than any time in modern history, the asset owners are the real winners because inflation is rampant, and anymore, the government intervenes to ensure that asset owners don't lose. AI is coming for a lot of jobs, and a college degree is not going to save you. Microsoft cut 60,000 employees recently. Well, they called it a paid equity. And we're talking about mid to senior level people here, not entry level people that had what they thought were safe jobs with degrees and licenses. UPS 30,000 position reductions this year. Amazon 16,000. This is why financial intelligence is so important. You have to own.

Keith Weinhold 30:23

You have to invest in assets, hard assets that you can see, touch, and feel. Things that AI won't replace, like housing, farmland, and food. You have to be allocated into durable resources that are going to take care of you and feed you for decades. It's about taking ownership and accountability for the life you create. You know, some of the best conventional wisdom is that whatever the herd is doing, you want to run the other direction. You need to act, you know. Warren Buffett, he purportedly said that he has never met a billionaire economist, not once. So his point is that you don't get paid for making a model and opining on theories. You're paid for making a move for acting, and as a real estate investor, you want less buyer competition. You desire more choices, more opportunity, and more motivated sellers. Often, they're the ones giving you the rate buy down. An investor mortgage rate that might be in the eights today. Instead, they're buying it down for you, often into the high fives. That's why, for long-term buy-and-hold real estate investors, this is your time. But in this era, you know, mass media articles about the housing market, nah, they tend to be more dour, more negative, and they also focus on owner-occupants, and that is fine. I mean, that's what most of the real estate market is. That's the audience. But instead, we are investors, and we don't get rich quick. And we really don't even try. We build wealth slowly over time. We're going for the get rich for sure, and most people they never build any lasting wealth. Here, we do more than just make recommendations to providers that have the best incentives in the top markets. We are your trusted advisor, consultant.

Keith Weinhold 32:36

We're essentially a silent partner throughout your investment journey. I mean, a lot of investors come to us never having purchased a property outside their home market, so they don't know the markets, and they're still looking to establish relationships. So a lot of times they don't know where to start. That's okay. We're used to that. We help you evaluate markets and opportunities, and compare providers and properties, and understand different investment strategies. So we often think through offers and financing. We help you write the offer if you want that. We navigate challenges either during or even after you buy investment property, and we connect you with the professionals that you need. And this includes parties like builders, wholesalers, flippers, agents, brokers, lenders, the all-important property managers, inspectors, appraisers, engineers, real estate attorneys, CPAs, cost segregation specialists, 1031 exchange experts, and others. So now you have someone experienced to consult throughout the process, from your initial questions to closing and beyond. I'm talking about GRE investment coaching, and this consulting is provided completely free of charge to you, the investor, and in the past we have had a lot of those listeners that engage with our coaching, and then they've come onto the show to tell you how we've helped you. This coaching, you know, it's one of the best things that we ever did here at GRE in order to help you.

Keith Weinhold 34:17

For five years now, we provided you the opportunity for a daydream in progress with our coaching. Take Jonathan F. He acquired six investment properties across Alabama and Ohio over about three months, and it was just a hair over 1 million in purchases. It was a rental single-family home in Pinson, Alabama, for 302k, and then five properties across Akron and Canton, Ohio. They all range between 135k and 145k each. The incentives we helped Jonathan F. get are free property management for the first year and. 5% down payment special financing, that is beautiful as long as you control your cash flows. That 20 to one leverage, I mean, that is really separating you from the herd, Jonathan. I mean, on this slightly over a million dollar portfolio, then just 5% appreciation enhances your net worth by 50k every year just from appreciation alone. These are single family rentals, and at least one is a duplex. So that is Jonathan's daydream in progress. Then we are helping Bruce T. He's a California investor building a four-property bur portfolio in Arkansas. BURR means buy, renovate, rent, refinance, and repeat. His four purchases were spread out over a full year and total 452k. Now, with Bruce here, this is where the coaching really brings value. Out-of-state bur investing that involves far more than just finding an inexpensive property.

Keith Weinhold 36:04

I mean, investors need to understand acquisition costs, renovations, after repair values, refinancing, rental demand, property management, and the professionals involved in executing the strategy. Will we help investors navigate that process, evaluate opportunities, connect you with the right specialists, and now you have someone knowledgeable to consult when questions or challenges arise throughout that. And Bruce's four purchases, I mean, they really demonstrate how an investor living 1000s of miles away can build a portfolio in a more affordable market with access to an established network and get that ongoing support. And then finally, we've got Drew. He is a Colorado investor expanding from Ohio and into Florida. Drew's purchases totaled 848k across four properties. Now that's not the amount he invested. That's a total property value. He initially purchased three Burr properties in Ohio within about two months, and the following year he expanded into Florida through a different provider here in the GRE network. He got a 170k property in Cincinnati, 190k in Pequot, Ohio, 232k in Springfield, Ohio, and then 255k in Ocala, Florida, where his incentives are a 2% closing cost credit and two years of free property management. So Drew is a good example of an investor who didn't stop at one marketer provider, getting into both Ohio and Florida with access to GRE's broader network and our coaching resources.

Keith Weinhold 37:50

We can help you explore opportunities across multiple states, compare different investment strategies, evaluate the professionals involved, and expand your portfolio as your goals evolve throughout time, like they surely will. So we're talking about property that makes sense today, and not just someday if rates happen to fall. And there are truly zero fees for GRE investment coaching because sponsors took care of that a long time ago, but before you utilize it, you know I would urge you to have some knowledge, just a little. Listen to at least 10 GRE podcast episodes first, and then I do actually want you to book a coaching call because it's gratifying to see the impact. If you're a more experienced investor, maybe you already have access to some resources, and then you don't need all of our help. But what this is doing is it's about helping you move from uncertainty and into an informed purchase. Or if you're experienced, we can help you take your next step too. I mean, what would more financial freedom let you do? The first property, in the short term, you might only notice that the cash flow from it just covers one household bill, and as you grow your portfolio prudently, you can see it metamorphosize into your early retirement plan. It's about more than just finding a pretty looking property with, say, a rate buy down. That's not enough alone. We're looking at the big picture: rents, expenses, management, and the local market. Because we deal nationally and we do this for a lot of buyers, we kind of have the scoop here.

Keith Weinhold 39:39

We know what kind of offer sellers will accept a lot of times because we've seen what other buyers have tried. So that's information we have here that can be really hard to find somewhere else. So build your wealth. You can book a time convenient for you to simply get clarity. Look at real opportunities and decide whether it fits your goals. It is free at greinvestmentcoach.com. You can open a calendar page there right now and set that through greinvestmentcoach.com. Until next week, I'm your host Keith Weinhold. Don't quit your daydream.

Speaker 3 40:24

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 40:52

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

Keith examines the shift toward a buyer's market, including seller concessions such as rate buydowns, closing-cost credits, and repair allowances.

He welcomes returning guest Caeli Ridge, president and CEO of Ridge Lending Group, to discuss how DSCR and interest-only loans may change the cash-flow picture for rental-property investors.

They also cover due diligence, appraisal gaps, and ways to access home equity without replacing a low-rate first mortgage.

Together, they explore how investors can compare financing options and evaluate deals in a changing mortgage landscape.

Episode Page:

GetRichEducation.com/630

For access to properties or free help with a

GRE Investment Coach, start here:

GREmarketplace.com

GRE Free Investment Coaching: GREinvestmentcoach.com

Get mortgage loans for investment property:

RidgeLendingGroup.com or call 855-74-RIDGE

or e-mail: [email protected]

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. We're talking about today's mortgage landscape, including does it really make sense to have a traditional 30-year mortgage when instead you can substantially lower your payment with a 40-year interest-only loan on a rental property? What are its pros and cons, and more on how seller concessions are creating an improved buyer's market today on Get Rich Education.

Keith Weinhold 0:33

For years, I've sent listeners to Mid South Home Buyers in Memphis, and for years, I've heard the same thing back. Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock, and Dallas, with its classic renovations and now brand new construction. For the first time in years, there's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years. It's called the triple five: 5% property management for five full years, half their standard fee. And Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the forever five. That's 5% management for as long as you own the property plus special cash pricing with 6200 homes under management. Mid South is the place to turn for turnkey real estate. Book your free investment strategy session at midsouthhomebuyers.com. That's midsouthhomebuyers.com

Speaker 1 1:42

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 1:58

Welcome to GRE from Secaucus, New Jersey to Seattle to Washington and across 188 nations worldwide. In fact, I'm Keith Weinhold, and you're listening to Get Rich Education, talking about how to build wealth through real estate without sacrificing your lifestyle. I mean, come on, what's more important than our fragile quality of life? This decade, the best time to sell a property was 2022. The best time to buy? Well, U.S. housing is tilting more and more toward a buyer's market, and really, it's this increased market normalization. Long term in American housing, that's really been somewhat traditional for a seller to help out a buyer in a lot of cases, and that's usually because the buyer is feeling pretty strapped after saving up for a down payment. Now, some of the most common concessions that sellers are giving buyers today are a closing cost credit. This means that the seller pays toward your loan fees and even toward your title charges. That is fair game. You can ask for that in a lot of cases. Also, the very well documented mortgage rate buydowns that we've talked about on this show a good bit, and that is for a lower permanent rate. The longer you hold the property, the more that this one matters because it helps you over time. If you won't hold the property for long, well, then a closing cost credit is probably going to help you more instead as a buyer more than a mortgage rate buydown would. Also, repairs or repair credit. The seller fixes inspection issues or provides an agreed credit to you at closing, and that way later you could decide upon what to repair. Another common seller concession is for appliances and upgrades like flooring, and this is especially prevalent with new construction, so they are some of the most common concessions that sellers are giving today. Now we talk about qualifying for financing. Now I've learned that increasingly more borrowers they want to get their loans sooner than later because they fear being laid off, and that might be due to AI-related layoff threats, but one thing is for sure: once you're laid off, your prospects of qualifying for a loan get really small because mortgage underwriting just loves seeing a steady income from a borrower. And of course, when you own more property, real estate is a diversification away from AI disruption because AI still can't help you download a three-bed, two-bath home onto a quarter-acre lot. It can't do that.

Keith Weinhold 4:53

Now, if it does not come up in our interview, I'm going to give you the result later on this week's show about just exactly how. Much your cash flow will increase if you employ a 40-year interest-only DSCR loan versus the regular old 30-year fixed. But first, something a little heartwarming for a real estate story. Now I mentioned this before to you a few years ago, but the update is that it is still happening. A condition that persists. After my recent visit to New York City that I told you about, I drove five hours to see my parents in rural Pennsylvania, and I slept in the same bedroom where I slept as a baby. This is because mom and dad are still married, still happy, and still living in the home that they bought in March of 1974, they moved in when Richard Nixon was president, and they still live there. The Vietnam War was still underway. All four Beatles were in their early 30 s. Before real estate became my career, it was simply home in Countersport, Pennsylvania. My first real estate story is still being written by mom and dad. It is still going on, and my parents also listened to the show, so they just heard that along with you. Let's discuss the mortgage landscape. I'd like to welcome back to the show the person that leads the eponymous Ridge Lending Group. They're an industry leader for investor mortgage loans. It's Caeli Ridge.

Caeli Ridge 6:38

Hi, Keith. So great to be back with you again.

Keith Weinhold 6:40

Now I kept your intro brief since anything longer would probably have to be approved by underwriting. We kind of need to get going with it here, and yeah, I often like to ask how she's doing, but the way she hears about how I'm doing is that she usually just needs two years of tax returns from me first, because Ridge is where I get loans for my own property, and Caeli. Before we talk in more detail about mortgage rates, why don't you talk to us bigger picture about the Fed? Since we got a new leader there about six months ago.

Caeli Ridge 7:13

Yes, Mr. Kevin Warsh. You know when he was confirmed, we didn't know what to expect, and I won't go down a political rabbit hole, I promise you, Keith. But you know, Trump has been clear on the people that he wants to surround himself with need to be yes men. Is that an appropriate? I think it's an exact thing to say too. Yeah. So I wasn't sure what to expect from this because you know the Federal Reserve is supposed to be independent, and by independent that means there is no outside influence. So I was a little concerned at first, thinking, "All right, well, what's this guy going to do? How are the foreign markets going to respond if he does end up being that kind of yes men guy?" That would have been bad news, I believe, for all of us. I was very pleasantly surprised. He seems to be very even keeled, steady, rational, reasonable. Everything that's come out of this guy's mouth, I have been a supporter of so far. Most importantly, though, early on he was talking about forward guidance and how he was going to limit some of that. His predecessor, and I think going back, I don't even know how long, that's kind of been a norm for the Fed Reserve and helping move those markets. He's really been staunch about not doing that, and I think that when you and I talked about this, I think what it is doing it's making Wall Street stand on its own two feet. They have to use the data points that are available to them to predict where things are going to go outside of what the Fed is responsible for. So that gives us some stability anyway. So I'm keen on that, and I'm fan so far. I mean, the jury is still out, but we'll see. So the Fed is doing a good job so far. They are saying that in the December meeting, we'll probably have one more Fed rate hike for the year. We'll see what happens.

Keith Weinhold 8:54

The best thing I can say about Kevin Warsh's first move, which was a rate hike, is that that very act helped exhibit some of the independence that we all hope for, and the fact that he appears to want to give less forward guidance and show his hand less often than his predecessor is probably good because generally I think that supports free markets rather than everyone focusing on one central person and just how did he say that word? Did he say moderate or modest? And what does that mean? So yeah, more of a hands-off approach is something that I surely like. And we're talking about rates. It's not so much the rate that the Fed sets, but with mortgage rates above 7%, will you tell us about some of the most effective ways that investors are making deals work today, Caeli.

Caeli Ridge 9:42

I got the tea. I'm bringing the tea today. Okay, are you are you ready for this? So I've got some good nuggets. I think your listeners are going to appreciate. So yes, we are in an environment where interest rates are slightly higher than we have come to expect them to be. But let me just quickly preface for everyone, guys. We are far from where the. The average high has been over the let's say the last 30 years. Okay, so we continue to have that narrative. Interest rates are higher than they have been, but they are certainly not at the high point of what a 30-year average would be. That said, I would tell you that the two things that we are focused on most right now to support our investments and making sure that our cash flows are there appropriate to the returns, etc. Are a debt service coverage ratio. I've got a bombshell for you there, and interest only loans. Let me take DSCR first. So DSCR, everyone is debt service coverage ratio. If you've never heard of this before, it's just a different way to underwrite an investment property loan, and the calculation is very very simple. We're going to take the gross rents and we're going to divide those by the PITI: principal, interest, taxes, and insurance. Okay, that division gives us a ratio of what the debt is versus what the income is. And if it's 1.0 or above, 99.9% of the time you're going to have a loan. Now there are products that will let you go below a 1.0 ratio. Let me give you a quick example. Let's say the gross rents are 750, and the principal, interest, taxes, and insurance is 1000. That would equate a DSCR ratio of 0.75, right? Okay. There are loans that you can get that go below the even. Okay, the even being if the gross rents were 1000 and the PITI was 1000, you'd get a 1.0 ratio. All right. Generally speaking, the rule of thumb you want to have from a lending perspective is that the gross rents are equal to or greater than that PITI. Equal to or greater than is where you want the rents. Okay. So that's just a quick one-on-one on DSCR. Now here's the bombshell: interest rates. And I went and looked back, Keith, and I'm not sure I can pinpoint another time that I've been able to say this. Yeah, interest rates for DSCR products are posting better, aka lower than Fannie Freddie right now for non-owner-occupied mortgages,

Keith Weinhold 12:03

that's great news. That's really good to hear. Why might one want to use a DSCR loan rather than a more conventional product, other than what you just told us about the potentially lower rates?

Speaker 2 12:15

I think that the other shine on this is going to be the underwrite is easier, right? So the Fannie Freddie loans, right, are golden tickets. You've heard my joke 100 times. Vials of blood DNA samples, right? Fannie Freddie is about your individual qualifications, so your tax returns, your pay stubs, your W 2s, all of that mixed together with what your monthly liabilities are. A lot of extra paper pushing on that end of the spectrum, but it was worth it because generally you're going to get the better interest rate over there, right? The better terms. Well, the DSCR is still a 30-year fixed, folks. So the same fixed-rate mortgage, the same amortization that keeps the payment lower, but the DSCR underwrite is now about the property. We don't care about your tax returns. We don't care about your pay stubs and your W-2s. It's about the gross rents divided by the payment, and that's it. You still have to show good credit to get the best rate, you still have to show some liquidity, right? Your down payment, etc., your bank statements, but it's an easier lift in the paper pushing underwrite, and it provides the same 30-year fixed. And now the rates are better.

Keith Weinhold 13:14

You can avoid rolling up the sleeve for that blood draw because the debt service coverage ratio loans, to your point, it looks more at the performance of the property than it does you and your individual credit worthiness. Although it's still going to take that into consideration. And you talked about 30-year fix with the DSCR. In order to lower payments, are there options with the DSCR, like for 40 years or for interest only for the first 10,

Speaker 2 13:41

yes, and yes. So DSCR was the first bucket. The interest only is another one that we are really focused a lot of our attention on right now. And here's why. Okay, I'm going to walk you through this. Might take me a second to unpack. So I want you guys to imagine just the straight 30-year fixed mortgage. Okay, go back to the Fannie Freddie, those golden tickets. This is an amortized mortgage. Okay, and if anybody's ever looked at an amortization table, chances are you're familiar with this. The first 10 years of the 30 years, the portion of your monthly payment that is going toward the principal is this much, right? The vast majority of that principal and interest payment is front-loaded to cover the interest first. You are not going to even start plunking down or chopping down that principal until the back end of the loan. All right, that's piece number one. Piece number two is statistically speaking, y'all. Okay, look this up for yourselves. Don't take my word for this. Statistically speaking, the average shelf life of a 30-year fixed mortgage on an investment-type property is about five years before we as investors are refinancing to reduce an interest rate or pull cash out. We want to harvest our equity to rinse and repeat. Right, it's about five years. So you guys can connect that.if the average shelf life is five years before we're refinancing for whatever reason, but the first 10 years of that loan. Is 98% interest. An interest-only loan is going to, in my opinion, be more advantageous to weather the slightly higher interest rate storm, as some are psychologically attaching to it, and get us over the hump. So I'm a big fan of the interest-only. It is saving in the monthly so that the cash flow is more improved, etc. Always, however, my token thing: do the math.

Keith Weinhold 15:27

Do the math, and the math will tell you what to do. You know, Caeli. Before I was a real estate investor, and even in the early years of doing so, I thought interest-only loans sounded terrible because I thought, oh well, how would you ever pay down the principal? That sounds awful. Later, I learned the point is not paying down the principal. It's about maintaining prudent leverage and it's about cash flow. The way equity is built in property is typically through price appreciation more so than mortgage loan pay down. You know, I've heard some say things like, "Oh, with an interest-only loan, you don't own the house; the house owns you." That sounds terrible. But when I think the house owns you, is when you're working hard or working overtime to make extra principal payments. That's when the house owns you. And as we know, every dollar that we convert from cash into equity, that dollar becomes unsafe, illiquid, and its rate of return is always zero. So interest-only loans provide a lower payment and increase your cash flow. And I think a lot of people don't realize that with an interest-only loan, you typically have the option of paying down principal if you like.

Speaker 2 16:36

I'm so glad you said that because that was going to be my follow-up statement. So for those naysayers that have a problem with the interest only. The fact is, you could actually within an amortization table, okay, you could actually prepay the mortgage faster on an interest only basis in that first five to 10 years than you could with a 30-year fixed. So if you were going to do that anyway, right, apply additional principal with a regularly amortized 30-year fixed, you could probably make more headway on an interest only by doing the same thing. Now, you and I agree that that's not the best use of someone's capital and funds. I'm going to hold on to my cash for obvious reasons, because getting that locked in, right, that inflexible anything you're going to pay in addition, if it's that 30-year fixed and it's not an open-ended revolving HELOC is gone. You've lost all liquidity and flexibility, and I'm not sure that that's where most of us that kind of know this math are going to place our funds. A

Keith Weinhold 17:31

lot of us have done conventional loans, typically a 30-year fixed. If someone's new to the DSCR world, what else should they know? Are there any mistakes to avoid.

Speaker 2 17:41

Mistakes to avoid. Make sure that you do your due diligence on the front end. I mean, just some of the common sense stuff, Keith. I would say is make sure you get your inspections. I can't tell you how many times, as long as I've been doing this, people they decide not to get their own independent inspection and then come to find out after they've closed on this loan that you need a whole new roof, or there's a foundation issue, or whatever. So obviously, get your independent inspection. That is different than an appraisal. Everybody, the appraiser is looking for obviously major safety or hazard issues when they're doing an appraisal. They're looking for the market value for us lenders as well, but it's different than an inspection. Make sure you get your inspection, and do your due diligence on, let's say you're using a turnkey provider. Make sure that you're double checking their numbers. Right? Are the taxes up to date? Sometimes, you know, I'm not saying that this is routine, but just verify the data points. Are the taxes accurate to what they've got on their performance? Insurance as well, because some of these things, especially like the insurance or the interest rate largely depends on your qualifications. So they may be quoting $1,000 a year for insurance, but you've got a claim or whatever it may be. There could be something that your insurance is going to be 1500, right? The deductible may be different. The lender may not allow for such a high deductible. The interest rate they're using is based on an 800 credit score, and you've got a 720. So just do your due diligence on the front end, so that the math, as it exists before you close, is accurate, and you're not finding out when it's too late.

Keith Weinhold 19:08

You know, Caeli, with these DSCRs, you and I might need to talk about this again when I buy more property for myself because I'm pretty interested. Can I get a DSCR with both a 40-year amortization and 10 years interest only fixed rate at the beginning.

Speaker 2 19:24

You sure can. I just quoted one of those the other day. 40 year AM and a 10 year, so it's a 10 year interest only with a 30 year repay. Yeah, and it looked great.

Keith Weinhold 19:32

That is super attractive. And then the rate is lower as well in the short term. Something that I wouldn't even need to have in order to be attracted to that, we're talking with Caeli Ridge here. She's the president and CEO of Ridge Lending Group. We're talking about how, in today's environment, at seven plus mortgage rates, how you can get some relief, how you can lower your payment, and for some perspective here, before we go on with this, one. I'd like to think through is that mortgage rates fell to 3% exactly once in history. That was for COVID, where we practically shut down the entire world. It took a global catastrophe to make that happen, so.

Caeli Ridge 20:16

And we're still recovering from it.

Keith Weinhold 20:17

Well, right? Yes, we really are, and so is the economy in a lot of ways. So now you certainly want to get the best terms you practically can, but you can't put your entire personal life and investing life on hold waiting for that to happen again because I wouldn't expect that it will. So grow your portfolio if it's something that makes sense to you. And Caeli, one way that a lot of builders and sellers are approaching this in order to help buyers, whether investors or whether they're looking to own their own home. Is we know it's pretty common for a builder to offer an investor say $20,000 as a concession. So as a way to get some relief, when is it smarter to take a price reduction of the overall price, and was it smarter instead to use say that 20k to buy down the mortgage rate? Can you weigh the pros and cons there?

Speaker 2 21:08

Yeah, I think that, and I don't have a spreadsheet in front of me that I can plug those in for you really quickly. But it always ends up being that math problem. Okay, based on an interest rate today, say let's just use the 20,000 as an example. So 20,000 off the purchase price at prevailing interest rates. What's the principal and interest payment versus keeping the 20,000 in the deal? The purchase price is still going to be higher, and using that 20,000 to buy down the interest rate. The markets are going to dictate how much that 20,000 is going to yield in the buy down. Let's say that the baseline is seven and a half percent. Okay, seven and a half percent, and we've got $20,000 of a credit to buy that interest rate down. Secondary markets are dictating what that spread looks like. So, does seven and a half become six and a half with 20 grand? I mean, that could be the case. Does a one point on $300,000 justify what's the payment difference in that case versus if we simply just keep the seven and a half and we take the purchase price from 750 to 730, that math is going to tell that story and it's going to be specific to the day in which you're having the conversation because interest rates are a very fluid thing. So I hope that answers the question. I think that it's a case by case, and we should run the math every single time to determine what the true best outcome is.

Keith Weinhold 22:25

In my experience, you would probably agree. In most cases, it's a better use of the 20k to buy down the rate than it is to lower the capital price of the asset. And we're talking about doing rate buy downs. Tell us more about what you're seeing because you do so many loans in there. This is interesting. Who is doing the buy down? Is it the seller or is it the buyer? Is the buyer getting into it and participating in it as well?

Speaker 2 22:51

Ooh, good question. No, I'm really feeling like, and this has been, I think, a long time coming. That buyer's market is really starting to take hold. We've been seeing it for some time now, but it is the seller that is having to give up some skin in the game here. The buyers are the ones with more power, and the buyers are the ones that are going to continue to set the table. Right, they're the ones in charge of the narrative here. And I'll tell you something else. I've been having this conversation a lot lately. We are right on the precipice, you guys, of being in a place where investors, real estate investors specifically, not as much homeowners, it's a different animal. But real estate investors specifically are right on the edge of being able to make fundamental legacy wealth, that financial freedom through real estate. There is a window that is upon us that we should be taking advantage of. Stop fixating on the rate, you guys. Please, you are missing the boat, and you're missing the opportunities that are here for the taking and will be. I hope for the next coming months, maybe even couple of years.

Keith Weinhold 23:52

Yes, we've seen this reversion to what's really market normalization, where you're getting more concessions as a buyer, and you can ask for more things that are on the home inspector's punch list, and you can get more coverage of your closing costs from the seller. One of the most common ones being that rate buy down. What other sorts of concessions are you seeing from sellers today, Caeli? Especially things that you would not have seen just five years ago.

Speaker 2 24:17

I would say it's a good combination of reduction in purchase price and seller concessions. Both of those are happening regularly on a go forward. The other thing that I'm noticing, and I'm tracking this, I've been really tracking it closely for the last couple of years. We have a spreadsheet that can go back around 18 months now. Home values. So up until a couple of years ago, it was very uncommon for a seller to come down if an appraisal came in short. Example: if the purchase price is $100,000 and the appraisal came in at 95,000, just for easy math, the lender, for those that aren't aware, is always going to lend the loan that we are going to provide for the individual is always going to be calculated. On the lower of those two numbers. Okay, so if you're buying the house for 100 grand, but the appraised value comes in at 95, we are going to give you your loan to value is going to be based off that 95. So that spread, that $5,000 spread, you know, you got a couple options. Either the seller comes down the five grand, the buyer covers the spread, or maybe some combination of the two. Up until recently, the sellers would never come down. You're having to cover that spread as the buyer, right? If there's any shortage from the purchase price to the appraised value, it was very uncommon that a seller would negotiate that. The buyer was going to have to be the one to cover that difference. I think that's another concession that's been more prominent these days, the seller is absolutely negotiating to come down or at least meet halfway if the values are coming in or do come in low.

Keith Weinhold 25:49

Talk with Caeli Ridge, president and leader at Ridge Lending Group, about investment property loans. More when we come back. I'm your host Keith Weinhold. Let me ask you something: If you've worked hard to build wealth is your money positioned to actually support your goals. A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. In full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call, or text family to 66866. That's family to 66866.

Keith Weinhold 27:00

What if you got your mortgage loans the same place I get mine? You sure can at Ridge Lending Group, NMLS 42056. They provide GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your prequel and even chat directly with President Caeli Ridge while it's on your mind. Start at ridgelendinggroup.com. That's ridgelendinggroup.com. This is author Jim Rickards. Listen to Get Rich Education with Keith Weinhold and Don't Quit Your Daydream. Welcome back to Get Rich Education, episode 630. I'm your host Keith Weinhold. We're talking with Caeli Ridge, one of the more familiar guests. We first spoke with her way back in 2015 here, and one of the things I've been trying to help you, the listener, with is for new purchases or existing ones. How you can get better loan terms, and not too long ago, I had asked Caeli about ARMs, adjustable rate mortgages. Is that an option? But it sounds like it's pretty unpalatable right now.

Caeli Ridge 28:15

It really is not, and this has been going on for many, many years. It's called an inverted yield. So when we talk about mainstream institutional lending, an ARM typically, historically, has provided us with some relief that would make interest rates lower than a fixed rate, a 1530-year fixed, right, a half, a full percentage point lower on the ARM. The inverted yield is keeping us from that. So, in other words, it means that the fixed rate products are pricing better than the alternative ARM, so there is no incentive for an adjustable rate mortgage right now on the traditional 30-year AM type mortgages. So no arms.

Keith Weinhold 28:52

A lot of homeowners, as we know, they still have equity locked up behind this awesome three or 4% mortgage that they probably got in 2022 or earlier, and by the way, when we look at the numbers of that, I happen to know that of American homeowners, only six in 10 have a mortgage. About four in 10 do not have a mortgage, more or less. And among those that do have a mortgage loan, it's now down to 48% to 49% of borrowers that have a mortgage rate of 4% or lower. So for those people that might want to access that equity but yet keep that rate in place, what's the best thing for them to do without giving up that first mortgage?

Speaker 2 29:34

Well, I might push back a little bit on that to start with and say, have they done the math? What is it that they're going to be using the cash for? You know, if you look at this country and statistically speaking, the overwhelming credit card debt that most people are carrying is a big, big number. If they're not looking at that equity as a means of trying to extinguish some of that debt, it's a problem because 4% means nothing if you're. Carrying 1020, $30,000 of 18 to 24%. So just make sure you're doing that math. And specifically, what I'm saying is, is that if you take a 4% interest rate and you increase it to a 7% interest rate to wipe out $20,000 at 18%, right? There's a math problem there that you must be doing. Otherwise, if that is not your scenario, and you just simply want to harvest equity for other investment purposes or whatever you want. Then you can always look at a HELOC, second lien, or first lien. You have options. You can do a second lien, do the math, and see if having an increase in interest rate actually makes a difference to your bottom line. There's plenty of options that you can access, and if that is all too confusing, then you just call me and I will walk you through it.

Keith Weinhold 30:43

Before you get a second mortgage, check and be sure that you do not have a DraftKings or FanDuel app downloaded onto your code. But you know, Caeli, we when we talk about that, we talk about accessing equity. Talk to us about the CLTVs, the maximum combined loan to value ratios for both a primary residence and an investment property.

Speaker 2 31:05

Yeah, let me just take you through the quick maths for ease of use here. So let's say that your home value is $100,000 and you owe $50,000 on your first lien mortgage, and the CLTV is 95%. Okay, that's going to be the highest anyone's going to be able to find. And keep in mind, at a 95% CLTV, the rate is going to be up there. So, if you had a 95% CLTV, $100,000 value property, and a $50,000 outstanding first lien mortgage, that means that you're going to have access to $45,000 as a second lien mortgage. Okay, you guys do this math with me really quick. So, 100,000 times 95% is 95,000. Okay, 50,000 stays in place. Then the difference there is going to be $45,000 that they would be able to access as a second lien HELOC. So the CLTV numbers are going to range between 75% and 95%, depending on occupancy, credit score, right? Some different variables like that.

Keith Weinhold 32:01

Right. We're talking about how much equity you can access, and can you parse that by investment property versus owner occupied?

Speaker 2 32:08

Yes, of course. So we have options that let us go to 80% CLTV for rentals, and the 95% is going to be reserved exclusively for the owner-occupied.

Keith Weinhold 32:18

When one looks at a second mortgage, how do those rates compare with the headline rate that we see for the 30-year fixed mortgage?

Speaker 2 32:27

You know, largely dependent on the CLTV number and credit score. So, with those two things, I mean, I've seen Prime is at what 675 right now. There are some deals that will go Prime minus a quarter. So, you could be at six and a half on a teaser or 599 on a teaser for three months or something like that. But I think in general we cap at 80% on the investment property with good credit. You're probably in the eights. Yeah.

Keith Weinhold 32:50

Okay. And you know, Caeli, do you find this to be true as well? When I'm just out, you know, walking in the park or hiking on a trail, and I you know make conversation with somebody, a few minutes in, they learn I'm in real estate. I soon find out about them. They don't know that they can get a second mortgage. Just the layperson on the street doesn't seem to know that they don't want to give up their 4% rate. And a lot of times they just don't even know that they don't have to.

Speaker 2 33:13

Especially investors. I think it's pretty common in my world too, where they're surprised that a non-owner occupied property can actually get a second lien HELOC,

Keith Weinhold 33:22

and you've been talking about a HELOC, a home equity line of credit for the form of that second mortgage, where you're keeping your first fixed low rate one in place. Talk to us about the different forms that that can take, perhaps other than a HELOC, and some of those pros and cons.

Speaker 2 33:38

Well, let's talk about the HELOC first. So you want to pay attention to if you're out there looking for a HELOC, pay attention to the term of that HELOC. The longer the draw period, the better, in my opinion. Oftentimes, HELOCs on rental properties will come with a shorter term draw, like a three-year draw. That means that you only have three years or 36 months to draw the funds, and then that draw period stops, and then it goes into interest only and repayment. Okay, so check out the draw. Ideally, you want at least 10 years draw or longer, and then figuring out what the repay looks like too, so that you're prepared for that. Chances are it'll have been extinguished or refinanced in the meantime anyway, but those are going to be important details. I like the HELOC option better because you're never paying interest on funds that aren't being used. So if you have $100,000 line of credit and you're only using 20,000, the interest accrual is only on that 20,000. So that gives me leave to pivot into a HE loan, which I think was your question, Keith. So HELOC is open-ended, revolving. You have access to draw from it and put back into it, et cetera, et cetera. A HE loan is when it's kind of like a first lien, where you're going to get all of that money up front at closing, and it's just an amortized payment over 1520, 30 years, paying interest immediately on the whole ball wax.

Keith Weinhold 34:59

The home equity. Line of credit having more flexibility than the home equity loan. All right. Well, you gave us some great alternatives and strategies around 7% plus mortgage rates in today's market. Caeli, how can our audience best connect with you? Because you are the experts in investment property loans, since that's mostly what you do.

Caeli Ridge 35:19

Yes, sir. There's a lot of ways you can find us on our website ridgelendinggroup.com. You can call us toll free at 85574 743-438-5574 ridge is the easy way to remember, or email us info at ridgelendinggroup.com. In any of those cases, we will be here on standby, ready to serve you.

Keith Weinhold 35:38

85574 ridge. I don't really know if it makes it that much easier to remember, but I think we've got it. It's been great, Caeli, having you back on the show.

Speaker 2 35:48

Thank you, Keith. Love being here.

Keith Weinhold 35:56

Thanks again to Caeli. She's helped GRE listeners originate more investment property loans than any lender anywhere ever. More on the DSCRs. You would pay about 16% more in a monthly payment on a conventional 30-year fixed than you would with a DSCR. And here's how I did that. Now we're looking at principal and interest only. If a conventional payment is $1,000 at seven and a half percent interest, what would it be for a 40-year DSCR loan, 10 years interest only, and seven and a quarter? Since its rate is lower, so this means instead of $1,000, it would be about $864 a month for the first 10 years, and then after 10 years, when it starts amortizing, the payment would go up to $976 per month instead of 1000. So not as much savings then, but you may very well have refinanced out at that point. And DSCRs can be either as a new purchase or a cash out refi. You can typically close on those in 30 days or less because it's easier to qualify for that since it qualifies on the property more so than it does you, inducing less brain damage. 30-year fixed.

Keith Weinhold 37:17

Those rates again one quarter to three eighths of a percent lower. I only used one quarter lower in the example. Note though that DSCRs have a five-year prepayment penalty, and also note that I'm not a mortgage loan professional. I am merely the shaved mammal that broke down these numbers for you. But you do know who the mortgage pro is and how to get a hold of her. Lots of terrific real estate wealth building material in future weeks here on the GRE podcast. It includes how we had a guest here previously that controls a $436 million real estate portfolio, and he predicted how AI would change his operations. Well, since his last appearance here, he's been putting AI to work. He's learned quite a bit about what actually works and what doesn't, and he will share it here. Until next week, I'm your host Keith Weinhold. Don't quit your daydream.

Speaker 3 38:18

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 38:46

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

Keith speaks with investor and The 80/20 Principle author Richard Koch about the strategy and decisions behind building wealth.

They examine how Koch's "star business" framework (combining market growth with competitive strength) can inform real estate investing, from choosing markets to recognizing emerging niches such as luxury senior living.

The conversation also explores the attitudes Koch associates with exceptional success, including self-belief, resilience, and developing intuition through experience.

Richard discusses how beliefs can shape financial choices and the themes behind his book 80/20 Beliefs.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold, the best-selling author of the 80/20 principle, is also an investor with a reported billion-dollar fortune. He joins us today, tells us how he built his wealth, and he's got plenty of insights on real estate today on Get Rich Education. For years, I've sent listeners to Mid South home buyers in Memphis, and for years, I've heard the same thing back: Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock, and Dallas, with its classic renovations and now brand new construction. For the first time in years. There's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years. It's called the triple five, 5% property management for five full years, half their standard fee, and Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the forever five. That's 5% management for as long as you own the property plus special cash pricing. With 6200 homes under management, Mid South is the place to turn for turnkey real estate. Book your free investment strategy session at mid southhomebuyers.com. That's mid southhomebuyers.com.

Speaker 1 1:31

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 1:47

Welcome to GRE, from the home of the Patriots, Gillette Stadium in Foxborough, Massachusetts, to Gillette, Wyoming, and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to Get Rich Education. Wouldn't it be interesting to see how real estate investing looks through the eyes of a prominent billionaire, especially when he's the author of the landmark book, The 80/20 Principle? That's what we're doing today. When he talks, people listen. Richard Koch will join us shortly from Portugal. He and I talked beforehand outside of this interview, and he told me Keith just simply asked me how did you get rich. I'm gonna be okay with that, so that's exactly what I'll do because he's really open about sharing, and as a show host, I love that, and I think that you will too. But we won't go for his ATM pin or his Netflix password. Only everything else. In his books, just like a lot of other successful books, there are several sequel works to his original 8020 principle book. He challenges the idea that outstanding success even requires Genius, consistency, or even basic competence-that those things are not necessary for success. You're going to learn what success requires instead, and you can see the 80-20 principle in a lot of places in your life. 20% of your clothing is worn 80% of the time. 20% of your phone apps take 80% of your screen time. 20% of your advertising generates 80% of your quality tenant leads, and I'm thinking that 20% of your tenants generate 80% of your problems. You're also going to get the architecture of how to become a billionaire.

Keith Weinhold 3:43

Now, Richard often talks about what he calls a star business, and that really means two things. A star business is the business that is the largest player in its market or niche, and that market is growing at least 10% annually. That's a star business, and we'll learn how to apply this to real estate, including apartment investing in London and elsewhere. Besides an author, he's a passionate investor and has plenty to say about real estate. This week's guest is the author of the mega popular book that sold over a million copies, The 80/20 Principle. In fact, GQ named it as one of the top 25 business books of all time. This is known as the Pareto principle. You might have heard of it, where 20% of your effort yields 80% of your results, and he since authored other popular books. Much of his life has been focused on investing. Oh, it's a warm Get Rich Education welcome to Richard Koch.

Richard Koch 4:54

Thanks very much indeed, Keith. Very kind of you to give me that great introduction. That's fine.

Keith Weinhold 5:00

Well, you're here on Get Rich Education. Tell us, how did you get rich?

Richard Koch 5:05

Well, let me just go through a little bit of biography here. I came from a pretty lower middle class background in England. I went to Oxford University when I was 18 and finished when I was 21, I then took a variety of jobs, but left them to go and do a business degree at Wharton in Philadelphia, from which I learned nothing apart from probability theory, which was a very very minor part of the course in macroeconomics, the only course win which I didn't do very well, but I learned about probability, which I think is very very essential for any investor. Yeah, and it's not difficult. You can learn about that in probably about two or three hours at the very most. And then after that, I worked for I had yes absolutely. I then worked for the Boston Consulting Group for four years, and that was very fortunate because their theory of how you get rich is something I'm going to talk about. It is relevant to real estate investing. It's relevant to all investing, but we'll come on to that a little bit later on. And then they fired me, which was great because I wasn't very good at doing what they were particularly good at doing, which was heavy-duty quantitative analysis. I'm not a terrific numbers person. And then I got a job at Bain and Company, which was a an offshoot from Boston Consulting Group, as you probably know. Yeah, and they were much more my cup of tea because they were interested in how to make companies successful. BCG, which is a wonderful company, was interested in getting the best possible strategy for any business using quantitative analysis, which really boiled down to trying to make the costs as low as possible for their clients and their prices as high as possible.

Richard Koch 7:04

That was sort of their objective, and trying to get a dominant market share in the most important businesses that they were in. The star business would also be one which is very high growth, and that's the formula which I have used and which I think is relevant for all investing. But how I got rich is generically possible for anybody. I think the origin of how I got rich was that I worked for 13 years in relatively high-paid jobs, and I saved a lot of money. I was helped by the fact that I didn't get married, partly because I'm gay. But anyway, whatever. By the age of 33, I had net assets of 250,000 pounds, which at that time I suppose would be about $300,000. I guess I then was the co-founder of another strategy consulting firm called Lek. I was the K in Le K, and in order to make sure that we had plenty of cash before we got clients, we all contributed a certain amount of money into the pot, and my share of that was 250,000 pounds, which was savings from all those years in the salt mines of working for other people. When I left L.E.k6. years later, that had grown to I took out 6 million pounds before tax or 4 million pounds after tax because we grew 100% a year. We were very profitable, and although I say so myself, we did very very good work. So there I was. I left ELK. Had no idea what to do. I hit upon doing two different things. One was I just started writing books because I'd always wanted to write books, and the second thing I started was making venture capital investments.

Richard Koch 8:56

And the first 250,000 pounds had turned into 4 million pounds after tax, and then over the next few years, over the next two and a half decades, I invested the money firstly in one company, and then in another, and then in another. And every time the investment size went up, and the reason for that was I had more cash, because all of those investments were very successful, and they were all star businesses, which I will come onto in a minute. So by the end of 2014, that 250,000 pounds had turned into, and I can remember this because the number is easy to remember: 543 543 million pounds.

Keith Weinhold 9:44

Wow!

Richard Koch 9:45

So I was sort of like a half billionaire in sterling, but it was simply from making successful investment and then doing the same thing again with a larger capital base. So that I think is the first thing, which I think is genetic. But anybody can do that, but in order to do that, you have to be able to make investments which are going to be successful, which is not easy. But there is a method for doing that. I'm allowing you to ask a question, and I can just carry on and and tell you what the investment method is.

Keith Weinhold 10:17

Well, that's an extraordinary amount of success, and yes, we're certainly interested in what that method is, and if that method includes having a substantial amount of capital to start with. So, tell us more about that.

Richard Koch 10:31

Yes, I mean this is a method which can be used for any amount of capital. Actually, you don't have to have $250,000 or pounds or whatever currency you have, you do have to have some capital, obviously. So you know you could start with $50,000. I think that's probably about the minimum. Well, the Boston Consulting Group theory, which Bruce Henderson devised from taking all these huge tomes about corporate strategy and reducing it to one chart is a famous chart which has cash cows, question marks, dogs, and vegetable stars. And the idea is you do a two by two matrix. You have low growth on one side, high growth on there. And being perverse, Boston Consulting Group decided to put the businesses which had the highest relative market share on the left rather than on the right, and those were the star businesses. So, a star business, which is the objective, is one which is in a very high growth market and also has a dominant market share. So, it has a very large share of its particular market. Now, trying to apply that to real estate is not too difficult, because part of the secret any real estate investment has to be the growth rate of the market. If you had invested in the 1950s in the fastest growing states in America, which were Texas and California. You could not fail to make a huge return from that. Yeah. Well, many people go into making investments, whether they're in venture capital or in real estate, without contemplating the market growth rate. And I was guilty of that because one of the investments was I made once, which was not one of my most successful investments, was actually in real estate in a company in London, in West London, place called Ealing. And some friends of mine brought me a proposition which said, "Hey, we're doing really successfully. We're making an awful lot of money here, and what we're doing is taking over Victorian buildings from the 19 th late 19 th century, and we're turning these huge places into apartments, and there was a shortage of apartments in West London and London as a whole, and so this was quite a successful strategy. However, after about three years of very good profits, during which I'd invested a total of 30 million pounds, the profit started to evaporate, and what had happened was that the cycle had changed, and basically there were no more large Victorian buildings to take over.

Richard Koch 13:17

I had interpreted as very profitable business, really wasn't, because it was all stock profit. In other words, the general price level was going up in earling, but it was not because we were fantastic at converting property into smaller units of property, which then made a lot of money. So it was essentially all stock profit, and once I realized, oh dear, I've made all this investment, and then to cut a long story short, after putting in 30 million pounds, I took out 15 million pounds. So I actually lost money on that investment, but that was quite interesting. And then I thought to myself, well, why, why did this happen? And it happened because the growth rate in Ely had slowed, because basically the the market had been very hot, and then it basically went cold. So, in terms of thinking about whether a market is growing or not, you have to think about it over a longer time horizon. Certainly, for I'm sure you know this more than I do. You know, certainly you need to think about things from a 10-year or longer perspective, rather than a very short-term perspective. But nevertheless, it is true that the star principle holds. You really want to invest in a very high-growth market. Now, that doesn't necessarily have to be a state; it could be a very localized neighborhood, which is growing very, very fast for particular reasons, or it could be a particular type of building, you know, a condominium, any kind of business. But you have to be sure that the way that you're segmenting and the investment you're making is actually in a very high-growth market. And that's happened in the Algarve, where I am in Portugal. You know, this Portugal has become a very, very popular destination for foreigners, particularly rich foreigners, and particularly actually rich Americans. And so, the real estate market around here has been quite hot.

Richard Koch 15:16

And I have made successful investments on the west coast of Portugal in real estate now, so I've canceled out the losses which I've made, but only because the market is growing very, very fast. So that's the first rule I think. What about the dominance rule? Says you need a high relative market share. I don't really know, to be perfectly honest with you. I don't know how to apply that property, but what it means is for me when I decided to make an investment in a place called Porto Covo, which is a beautiful, beautiful port city on the west coast of Portugal, between the bottom bit where I live and the Algarve and Lisbon. This particular place had got fantastic beaches, but it was relatively small. And then we heard that there were rumors of other people making investments. A four-star hotel opened, and then two five-star hotels opened. And now Nvidia is making a big business center near there, and so on and so forth. So it looked as going to be this particular enclave, this particular town, not Portugal as a whole, not even the Alentejo, which is the area within Portugal that it is, but Porto Coburg itself would be a successful investment.

Richard Koch 16:35

So, the definition of the market is hugely important. The other thing is, we didn't take small blocks of land. We got the two biggest blocks of land in Porto Cova, and so we were able to make you know quite successful. I don't exaggerate the return from it. It's probably been an annualized rate of 15 to 20% but when you consider that the risk in real estate, is certainly much lower than in venture capital because land can never go bust. It's always going to be worth something. Then I think 15 to 20% is a reasonable rate of return.

Keith Weinhold 17:14

Well, there's a lot there. You know, as we say here at Get River Education, the market is often more important than the property. A palatial estate in the middle of nowhere doesn't have a very high value, but even a tiny studio apartment in Manhattan, where you almost have to sleep in a closet, that can actually bring a good rent. The market is more important than the property, and you touched on something really interesting when it comes to market research and where we think dollars are going and where we think that places are uptrending. You talked about resort development in one of the areas you looked at in investing in. When we see resort or hotel money or a lot of other business money come into a place, us as individual investors, I kind of think of it, Richard, as we get to leverage their research. You know, they've done a good bit of research and demographic analysis to make a decision to invest, say, hundreds of millions of dollars into an area. We can leverage that ourselves.

Richard Koch 18:15

Yes, and another segment which I think is particularly interesting is luxury places for older people, and certainly in Portugal, that has been very, very successful. And in fact, it's quite segmented, Keith, because it segments by nationality. You find that, for example, a bunch of Swedish people around here decided to get together, rich, fairly rich, we're not mega rich, but fairly rich, Swedish people who had I don't know, were able to make an investment of approximately $10 million plus retirement homes for those people in a very attractive location. I haven't made that investment, but turned out to be very successful, and the idea of a a luxury retirement home. Yeah, it used to be an oxymoron. The retirement homes are horrible places, but actually, retirement homes for really rich people, and particularly people who are interested in remaining fit. So there's got to be a big swimming pool. There's got to be a big gym. There's got to be big facilities. There's going to be all kinds of social things going on. That is a segment which I think is particularly interesting if it's growing very fast and if you're the first person to find it.

Keith Weinhold 19:30

That's a smart thing to say because oftentimes when we think about market, we think about geography, but you're talking about a use type in the trend in senior living. You're listening to Get Rich Education. We've been talking with 80/20 principle author Richard Cush about real estate. More when we come back, including the 80/20 principle and interesting things from one of his more recent books, Unreasonable Success. I'm your host, Keith Weinhold. Let me ask you something: If you've worked hard to build. Wealth is your money positioned to actually support your goals. A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation.

Keith Weinhold 20:25

In full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call, or text family to 66866. That's family to 66866. What if you got your mortgage loans the same place I get mine. You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your pre-qual and even chat directly with President Caeli Ridge while it's on your mind. Start at ridgelendinggroup.com. That's ridgelendinggroup.com.

Hal Elrod 21:31

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 21:45

Welcome back to Get Rich Education. I'm your host Keith Wine, who we're talking with 80/20 principle author Richard Cush, also known as the Pareto principle, where 20% of your effort yields 80% of your results. And Richard has been telling us about where to focus your time and energy in order to get those results, and Richard, one of your popular books is called Unreasonable Success. I found it so interesting that you challenge this idea that extraordinary success requires genius, consistency, all-round ability, or even basic competence, and now I would think that those things do matter. But instead, you identify nine key attitudes and strategies. So, tell us about those and what makes those important for an investor.

Richard Koch 22:35

Yeah, I don't believe that people are successful because they are necessarily brilliant or much cleverer than other people. I think it's more a matter of personal psychology and the attitude which people have. I know a lot of rich people who are not very bright. I'm one of them, and honestly, it's much more important to know what was successful. My research actually looked at 20 people who were very very successful, but were not necessarily absolutely brilliant. In fact, they include Winston Churchill, who was a total failure throughout most of his life. But he did one thing which really made him successful, and thank God he did. Which was in the 1930 s, he decided that Hitler was a menace, and that Hitler had to be stopped, and that he was going to be the person to do that. Now he'd been very unsuccessful as a politician. He'd been rejected by the Conservative Party, that who's a member of. He was someone who drank a lot. You know, he was not highly respected, but he made it his mission to point out the danger that Hitler represented, and in 1940, when Britain was about to be invaded, he was the only possible selection as prime minister. So I tried to identify what it was that he and other people who had been very successful had, and the first one of those is self belief, and I think this is actually the most important one. Yeah, self belief, and this is not peculiar to real estate investing. It's actually common to all forms of investing and all forms of success. If you don't really believe in yourself, then you're probably not going to go anywhere. And that self belief doesn't have to be rational. In many cases, it can be completely irrational. So, in the case of Winston Churchill, he always thought that he was going to be prime minister, and that was because he'd been brought up by a father, having a father called Randolph Churchill, who had been the finance minister, Chancellor of Exchequer in British speech, back in the 1880s, and he had had dinner with current and future prime ministers when he was in his youth, and so he naturally thought he was part of the ruling class and that he would be successful. He then had a long period of failure of success, but he never. Stop believing himself. He never stopped believing that somehow he would become prime minister, and he did become prime minister. So, I think it's very important to be generous to yourself, and you know certainly almost to the stage of being delusional.

Richard Koch 25:14

Self belief, I think, is important for real estate investor, indeed for all investors. And then the second thing in the picture there is Olympian expectations, which means being ultra ambitious. You know, sort of saying, I don't want to be a moderate success. I want to be a fantastic success. And how am I going to be able to to do that? And I think that's very important for real estate as well. I mean, we could think about a president of the United States that that applies to where he'd always been super ambitious and rarely been super competent. The third thing, and I think this is very important for everyone, and also for real estate investors, is to have a transforming experience, and that is usually going to work for someone or for a company where you are part of a company which knows something that nobody else knows, and that was true for the Boston Consulting Group. In my case, they knew about business strategy that no one else knew about. It's true for Bain and Company, which knew how to make companies more successful by having a long-term consulting relationship with them, it was true for almost any very very successful person that they had a period of time in their life when they learnt something that other people didn't know, and so I don't know if there are real estate companies that you would recommend going to work for. They're probably the best ones are ones that nobody else knows about, but people who found the focus, which has been very, very successful.

Keith Weinhold 26:44

I'm glad you mentioned focus because a focused fool can outwork a distracted genius.

Richard Koch 26:49

Indeed, that's true. I think there are two other of the nine things which are most important. One is to thrive on setbacks. You know, real estate investing, like most investing, is a cyclical business. I think you'd agree. Yeah. So part of your success is going to be whether you're in the right part of the cycle. And what you should be able to reckon with is that some stage you're going to, yeah, have a bad year. You're going to have a bad two years or bad three years, or whatever, but you have to be resilient, and being resilient is partly a matter of having a fairly secure capital base. So, whereas I was recommending earlier that you basically double up and then double up and then double up again, I think you have to be very cautious of that in real estate investing, and you need to have a buffer or a cushion, which means that you, you know, if the market goes down, you're not crucified. And then the last thing I draw attention to is acquire unique intuition. It's very difficult to describe exactly what intuition is, but it's the ability to differentiate when you can trust a person, when you can trust a market, when you can trust yourself is very important to have the intuition that says, actually, I know the difference between a bulleter and someone who's actually the real deal.

Richard Koch 28:17

You know, it's very important to know that you actually can judge whether something is a good investment or not, and the only way that you can require that is through practice and through making a few mistakes and then analyzing mistakes that you've made. But saying, when I invest, I'm going to have a formula that nobody else has because I've got the intuition that that's going to be very successful, and therefore you're not going to overpay for the property or the land or whatever that you have to start with, and you're also going to know when the danger signals arrive.

Keith Weinhold 28:57

Have a buy box, for example, and stick to it. And you know we're really talking here about now how perhaps 20% of an investor's decisions are likely to produce 80% of their long-term wealth. And when we think about making better decisions, Richard, where do most successful people waste their time? Are there things that they should stop doing immediately?

Richard Koch 29:23

I think 80 is not an exaggeration. 80% of the stuff we do is useless or counterproductive.

Keith Weinhold 29:31

Yeah.

Richard Koch 29:31

So knowing what that is, I have no idea what that is in real estate investing. I think it's probably being driven exclusively by data, or it's probably being driven by the contacts that you have, or whatever. You have to work out in any business where you're trying to make money what are the things that you do very, very well that other people don't do well, and that isn't going to be everything. It may be something really esoteric, something very. Rare, etc. But you've got to discover what are the hot spots which actually work for you and don't work so well for other people. Yeah, it's impossible to specify what those are. But what you have to realize is that most of what we do is useless, and a lot of what we do is counterproductive. And just focus on the things which are uniquely played to the strengths that you have, and that is very difficult to work out. But once you've worked it out, you can't go wrong.

Keith Weinhold 30:32

Well, I think you've just touched on something fascinating because you've written that unreasonable success it often comes from identifying and embracing our individuality, and most people, if they're good at something, they like doing that thing, and if they like doing a thing, they're also good at it. But how does someone distinguish a genuine strength of theirs from something that they merely enjoy doing?

Richard Koch 30:58

Well, you have to look at the results, and you know what are the results relative to the effort that's gone into it? And the effort is not just capital; it's also time, it's also contacts that you have. So you have to say, okay, I've got this theory about what I'm uniquely good at doing, but is it true? And you do need to test that with data. So you might think you're uniquely good at identifying property in a particular area or a particular type of property, but what's the track record of that? And the track record never lies. It's it's a correction. But there is something that you do which is exceptionally clever, and the rest of the stuff that you do is mediocre or possibly worse than that.

Keith Weinhold 31:42

Maybe I need to rethink some of this myself personally, Richard. I think I'm, you know, wired to be an academic, but I put an awful lot of effort into being an athlete, and I sure don't get very many good results from that. So this conversation is helping me reframe a few things, perhaps.

Richard Koch 31:59

So I'm going to roll with a mediocre athlete, if that's good for your health, and if that's good for relaxation, and if you enjoy it, there's no absolutely nothing wrong with enjoyment, but you have to make a distinction between enjoyment and your professional life, and yeah, the two don't always go together.

Keith Weinhold 32:18

You're right. That will help me justify doing it. It's for my health, even if my trophy case is completely empty. No,

Richard Koch 32:25

I think I think being healthy and being fit are probably the two most important things for not only you know longevity and good health, but also for financial success as well. I certainly would not discourage you from going training.

Keith Weinhold 32:41

Well, Richard, you are a prolific author. So before you go, please tell us about your latest book. It's called 8020 Beliefs.

Richard Koch 32:51

Yes, and I'll brandish it at you. This is my best book. I've only just written it, and it's a different book from all the other books that I've written is based on introspection, and the theory behind it is there are certain beliefs which we have, which are really bad beliefs for us, and we're not aware of them. And I describe in the book how you know I had a disabling belief which I really, really was not very helpful, and that was actually related to investment, etc. I believed that the most important thing in my life was making money, and I discovered through a variety of different feedback mechanisms and through some traumas and unhappiness that that wasn't true, and I had to give up that belief before I actually started making a lot of money. It's all counterproductive. It's all about intuition. It's all about getting your friends and family to talk to you when you are unhappy, and work out you know what is the source of your unhappiness. And it's usually a belief that you have which is not true.

Richard Koch 34:00

The other thing which the book does is talk about good beliefs, beliefs that make you very successful, and there are a few of those which are suggested. It's based on 51 very intensive discussions with people about their lives, people that I'd known for decades and knew very well, and they bare their souls anonymously in most cases, but they do bear their souls. And if you want a book which is about you rather than about investment, this is the one to have a look at. 8020 police. Thank you very much indeed, Keith. The plug commercial there, and thank you for inviting me onto the podcast, I very much enjoyed it. Thanks very much indeed.

Keith Weinhold 34:44

It's been so good getting to know you. Really fascinating. Thanks, Richard. Keith insight from Richard Koch today. He emphasizes the growth. Story find a real estate growth market that can mean a lot of things: job growth, population growth, or demographic growth in a niche like senior living. From his view, he likes that real estate is generally safe. For example, its value essentially never goes to zero. Isn't it novel how he challenges the idea that outstanding success requires genius, consistency, or even basic competence. That's kind of amazing to think through. Instead, what success takes is self-belief. Self-belief can even be irrational, and he also adds to that Olympian ambition, focus, and acquiring unique intuition.

Keith Weinhold 35:47

So really, his outlook is rather optimistic if you think about it, because it's more of an approach where anyone can do this. Anyone can have massive success or wealth without having to win some sort of hereditary lottery, and since the 8020 principle, also known as the Pareto principle, means that 80% of your results come from 20% of your efforts, well, now you know more about what to allocate your 20% to and what to avoid. Make your vital few trump your trivial many. Gratitude to Richard Kosh and his wisdom today. Until next week, I'm your host Keith Weinhold. Don't quit your daydream.

Speaker 2 36:38

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 37:06

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

Keith examines the opportunity cost of paying off a mortgage early and why homeowners with substantial equity may still feel short on cash, alongside observations on Manhattan's distinctive residential towers.

He speaks with Michael Gifford of Splitero, a mortgage and real estate executive, about home equity investments (HEIs) and how they exchange an upfront payment for a share of a home's future value.

They compare HEIs with HELOCs and cash-out refinancing, including differences in qualification, monthly payments, fees, and repayment timelines.

Keith and Michael discuss a practical look at how homeowners might weigh access to equity against the costs and trade-offs of sharing future appreciation.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. The opportunity cost of owning a home free and clear. New York City has some of America's most interesting real estate. Then, with an HEI, you can access cash in your home without refinancing. You don't make any monthly payments or pay any interest. Does it sound too good to be true? We're learning about home equity investments today on Get Rich Education. For years, I've sent listeners to Mid South Home Buyers in Memphis, and for years, I've heard the same thing back. Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock, and Dallas, with its classic renovations and now brand new construction. For the first time in years, there's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years, it's called the triple five, 5% property management for five full years, half their standard fee, and Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the forever five. That's 5% management for as long as you own the property plus special cash pricing, with 6200 homes under management, Mid South is the place to turn for turnkey real estate. Book your free investment strategy [email protected]. That's midsouthhomebuyers.com.

Speaker 1 1:42

Your list. to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education.

Keith Weinhold 1:58

Welcome to GRE from Manassas, Virginia, to Manhattan, New York, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich Education, and I'm in Manhattan today. More on that later. I've been well known for talking about how your rate of return from home equity is always zero, and how that fact can drive your investor decisions, even if you're a homeowner and don't own rental properties. So then, what are you going to do with your dead equity? And I practice what I preach. I own a lot of properties, and I could pay them all off, but I have mortgages on them all out of choice, and in fact, I have never owned a single property free and clear out of choice as well. Well, with what we're talking about later today on the show, for the first time in some detail here, home equity investments or HEIs, you can get access to part of your equity in the form of a lump sum payment, 10s or hundreds of 1000s of dollars, without paying any interest or having to make any monthly payments at all. This is because it is not a loan; it is an equity sharing agreement. This way, if you're one of those people with an ultra-low pandemic-era mortgage, well, you can keep those terms in place and get access to cash and have it all. Now, you know, last month a publication as mainstream as USA Today they published an article and it was titled "Why Paying Off a Mortgage Early Could Be the Wrong Move. At that time, I shared a link to that article with you in the "Don't Quit Your Daydream" letter that I write to you every week. That article let us know that, according to Rocket Mortgage, about one in four mortgage holders make extra payments on their loans. Well, you might not find that part surprising because Americans are not very well educated on financial matters. But here's the part you may very well find surprising: per the Rocket Mortgage Report, those that make extra payments are most prevalent among those with the lowest rates. I mean, those people then are really paying an opportunity cost if they're speeding up the retirement of a pandemic era three or 4% rate. For almost everyone that's doing that, it is probably a rather gross misallocation of capital. All at once, they're losing scale, leverage, arbitrage, liquidity, and rate of return. USA Today says older Americans-they're the ones that are really interested in. Idea of being debt free. Younger homeowners, when they come into money, they're more interested in investing it rather than paying down their mortgage. Okay, that is what they have found, and that's all for takeaways from the USA Today article on rethinking paying down your mortgage. I am telling you, it is one of the biggest financial lessons people once learned that they need to unlearn. Rushing to pay off your mortgage-that is financial malpractice. You're told it's the responsible thing to do. It is not. It is equity jail. Your cash gets trapped in 2008 during the global financial crisis. Banks foreclose first on the homes with the most equity because it was the easiest way to recover their money. Liquidity is protection. Don't lose it. You pay opportunity costs. That money could be creating cash flow. You don't want to pay another $400 in interest this month. Well, how about losing the opportunity to create another $1,000 this and every month? And with inflation, you lose the advantage of paying back the loan with cheaper dollars. Mortgage payoff and accelerated mortgage paydown is a wealth-killing trap, and now I recently had lunch with the CFO of a publicly traded communications company in Anchorage, Alaska. Sharp guy, we got into a discussion about this. He is in the free and clear camp. He likes a free and clear home for peace of mind. Although, because he is a chief financial officer, he knows that it is a poor allocation of capital. One thing he said to me is what I hear some other people say. Well, if you lose your job, then you're sure gonna be happy that you have a paid-off home? No, you won't be. You're making my point for me. In most cases, it's just the opposite. If you lose your job, you're going to need money.

Keith Weinhold 7:11

You're sure not going to be able to get it if it's trapped in the home. And one thing is for sure: a bank is not going to give you another loan if you don't have a job, a paid-off home is one of the few places where you increase your risk while you simultaneously decrease your return. So keep your equity separated, liquid, and hopefully earning a return. Now, as we're talking about HEIs today. Don't confuse that with a loan, just because I've been discussing mortgage loans here. An HEI, again, home equity investment, is an equity sharing agreement, not a loan. Like I mentioned earlier, I am in terrific New York City this week as a real estate show, let me tell you about some of the interesting urban real estate that I'm interacting with this week. As I'm bringing you the show from Midtown Manhattan today, 31st Street between Fifth and Madison, about three blocks south of the Empire State Building. Besides the sights that everyone knows about, like the Statue of Liberty, the World Trade Center, Rockefeller Center, and the Brooklyn Bridge, I had the opportunity to do a collaboration with CNBC on Wall Street and in the financial district. Even though I'm more of a Main Street guy than a Wall Street guy, also did you know that some of America's tallest buildings were built here in just the past five or six years. Yeah, all the continent's 10 tallest buildings are in the U.s8. of the 10 are in Manhattan, and three of the 10 tallest buildings in North America are these new pencil towers.

Keith Weinhold 8:58

And you might remember that we've had a guest here on the show, both this year and last year, the star of the A and E show, The Real Estate Commission, Todd Drowlette. Together, we've got a chance to check out what are known as the Pencil Towers. If you're not sure what they are, these are buildings about one 500 feet tall on the south end of Central Park, and they're called the Pencil Towers because they are extraordinarily tall and narrow. In fact, one of them, called the Steinway Tower, is so slender that its height is 24 times its width. It is, in fact, the world's most slender skyscraper, and much of the Pencil Towers area is residential condos now? As far as renting out those condos, I have yet to determine the rent-to-price ratios for you, but I tend to doubt it's as favorable as what you're going to find at GRE Marketplace with our investment coaches here. True. Some of America's most jaw-dropping real estate, with sweeping views of Central Park and into New Jersey and way beyond, and clear day views all the way to Connecticut. Some more cool real estate interaction here. Did you know that nightly, from 1150 7p.m. to midnight, a lot of the video boards in Times Square sync up for a special show. They are not just showing their normal ads during that special short three minutes. That ought to be cool. One of my days here, I'm going to take the subway from my hotel and temporary GRE studio here over to Brooklyn, and then when I'm done, I'm gonna walk the Brooklyn Bridge back to Manhattan.

Keith Weinhold 10:46

So, did you know that the subway then goes under the river? Yes, the subway tunnel goes beneath the East River. The New York subway system has 14 underwater river crossings beneath various rivers, and by the way, that is not a phenomenon unique to New York City. There are also subterranean subway river crossings in D.C. beneath the Potomac, Montreal underneath the St. Lawrence River, and also in London, Paris, in Shanghai. Some really cool real estate here in New York City, there is just so much to do. I wonder if kids that grow up in New York City still say that there's nothing to do here, like I did growing up in my small hometown in Appalachian Pennsylvania. I hope they don't say that here in New York City. They can't possibly say that. Coming up straight ahead on the show, we're talking about how to access cash from your home. You don't need to refinance, and you won't pay any interest or make any monthly ongoing payments with HEIs.

Keith Weinhold 11:50

And this is helpful because a lot of Americans at this time they feel cash poor due to the high cost of living, and yet at the same time they've got all this inaccessible equity locked in their home. This can help solve that. I'm Keith Weinhold. You're listening to Get Rich Education. Let me ask you something. If you've worked hard to build wealth, is your money positioned to actually support your goals? A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. And full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call or text family to 66866. That's family to 66866. What if you got your mortgage loans the same place I get mine? You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage.

Keith Weinhold 13:31

Start your pre-qual and even chat directly with President Caeli Ridge while it's on your mind. Start at ridgelendinggroup.com. That's ridgelendinggroup.com. This is Rich Dad Sales Advisor Blair Singer. Listen to Get Rich Education with Keith Weinhold, and above all, don't quit your daydream. This waste guest is a career mortgage, real estate, and tech exec. He's acquired and sold over 1000 homes across the West Coast, holds a bachelor's degree in real estate, and he's a licensed broker in California. But he's doing something really interesting today that we'll discuss. Welcome to GRE, Michael Gifford.

Michael Gifford 14:21

Thank you. Thank you for having me on.

Keith Weinhold 14:24

Michael, Home equity investments (HEIs) I think they really make sense today for a few reasons. The average homeowner has about 300k in home equity. That's a record high, and about 200k of it is tapable. You've also got the fact that mortgage rates are historically normalized, but they're higher today than they were five and 10 years ago. So more people look for ways to access cash without refinancing, which is something we'll talk about. I brought up home equity investments and described them. To my audience last year, Michael and I basically let everyone know that it's not a loan. Instead, a company gives you a lump sum of cash up front in exchange for a share of your home's future value. A company like yours does that, and for the homeowner, there are no monthly payments and no interest, but you do have to pay back the company later. Did I summarize that about right? And what else should we know?

Michael Gifford 15:29

Yeah, that's right. I would say it's a product that more and more homeowners are seeking, as you mentioned. Right, homeowners now really have two assets. They have their home, but they also have a low-rate mortgage that they want to keep in place. And exploring alternatives to access that equity, you know, you touched on the dollar amount, but most homeowners come to us, and 60% of their home's value is their home equity, right? And so that's a large, large savings account that they need help accessing. And you know, with the interest rate environment being high and qualification for a lot of traditional financial products being difficult, homeowners need alternatives, and that's why Splaterro exists.

Keith Weinhold 16:05

Is this something that can be used only on primary residences or rentals?

Michael Gifford 16:09

Can do both. The majority of folks are using it on their primary residence.

Keith Weinhold 16:15

Okay, what's in it for you and your company? Because of course, you're giving a lump sum of cash to these homeowner borrowers without them having to pay any payments or interest.

Michael Gifford 16:29

There's no monthly payment on product, but we're sharing in their home's future value, right? And so, where home values are today with this much equity, homeowners receive that lump sum of cash. Often, you know, a little less than the numbers you were talking about earlier. They don't usually tap all of their equity that they have available, but then when they refi or sell in the future, they'll pay us back, and we'll get a portion of the home's value at that time.

Keith Weinhold 16:53

Okay, so are homeowners or investment property owners going for amounts more like 50k or 100k in a lump sum that you pay them.

Michael Gifford 17:02

They're usually in that 100 to 150k mark. You know, we're in 17 states. Kind of the average home price that we're working with now is about 650 or so, and of that, people have over $300,000 of equity in that house that they need to access.

Keith Weinhold 17:17

Yeah. Okay. Go ahead and give us an example. Perhaps if someone has a $500,000 home and it appreciates in value, and then the portion of that increase in value or equity amount that you would take.

Michael Gifford 17:30

Yeah. So just say that $500,000 home for number sake. Let's say we gave them 50k, right? So that's 10% of the home value. When they sell a refi in the future, we'll take 20% of the home value, so two times the initial percentage, or we also have a homeowner safety cap. So they never pay more than 17 nine nine annually. So whichever one of those two is less, say in the future their home goes up in value, will take 20% subject to that safety cap. So the homeowner knows that the most they'll ever pay right now is 17 nine nine er year.

Keith Weinhold 18:02

Okay. So if a 500k home goes up in value to 650k—

Michael Gifford 18:09

That be the 20% of the 650 or 17 nine nine on the 50k, whichever one is less.

Keith Weinhold 18:15

Oh, got it. It's 20% of the 650, not of the equity amount of the home's total value.

Michael Gifford 18:21

The home's future value. Yeah.

Keith Weinhold 18:23

Oh, got it. Okay, so we're talking about homes in an appreciating environment, which is typical. What if the property goes down in value? What happens then, Michael?

Michael Gifford 18:34

We still share in the same value, so 20% of the value of the home, whenever they choose to sell a refi or our 17 nine nine safety cap, whichever is less. So home goes down in value. Our investment could go down in value as well.

Keith Weinhold 18:47

Who have you found that's using home equity investments there? Because you know, Michael, I imagine sometimes it might be a person that's trying to create arbitrage and be savvy. But I'm just going to guess that more often you get homeowners that are in trouble and need cash in the short term with the rising cost of living, and a lot of them bought homes with three or 4% mortgages five or more years ago that they probably couldn't even afford to buy if they tried to repurchase it today. So, who do you find that's using HEIs?

Michael Gifford 19:17

Yeah, well, to comment on your last comment before I answer your question, is yeah, that's the case, right? A lot of homes have really appreciated in value and might have outpaced the income that the homeowner has. Maybe they've had some credit troubles. Maybe their debt to income ratio can't satisfy that actual home value, so they couldn't probably buy that house today. Right, but we're working with homeowners across the spectrum. You have the savvy homeowners with great credit scores and great income. They're using this product though still because it has no monthly payment. There are very few financial products where you can receive you know six figures of cash and not make a payment on it the next month. And so they're doing all sorts of things. They're repairing and renovating their house. They're doing the pool that they always wanted. You know, doing the kitchen renovate. They're paying for their kids' college. They're keeping up with cost of living, as you said, is expensive, and so people are looking at their homes now as a large savings account, and that number of home equity and that number in their savings account keep going up, and they want to be able to access it. We also see the other end of the spectrum, right, where you see the homeowner that can't qualify for a traditional product, right? They don't have the credit score. They don't have the income to actually use a traditional product, but they have a ton of equity in their house.

Michael Gifford 20:26

And so, for them, they're often faced with: Do I sell this house or use a credit card? Which are both not great choices with our product and our qualification. You know, not being a bank, there's no income verification requirement. There's no DTI calc on this because you're not making a monthly payment, we can qualify a lot more homeowners, all the way down to a 500 FICO score. A lot of those homeowners are doing the same thing; they're keeping up with cost of living, they're paying off their credit cards. Right? We see people's FICO scores actually increase because they've paid off all their debt with the funds that we give them, and they are actually in a better financial picture. And often, a lot of times, the word that we hear is relieved. Right? They have now the opportunity to use that home where they've gained all this equity to pay off all their debts and give themselves a fresh start. And that's a that's a pretty unique proposition for a lot of homeowners.

Keith Weinhold 21:14

So I don't think of this as a delayed gratification instrument, but sometimes it does not make sense to delay gratification, as I've shared with my audience. Sometimes the expense of delayed gratification is denied gratification. So you're certainly helping meet some short-term needs. And yes, HEIs, home equity investments, they really do occupy this interesting gap in the market. And for some of the reasons that I brought up earlier, it really is quite a timely period for using it here. Tell us more about the qualification and if there are any fees.

Michael Gifford 21:49

Yeah, the qualification process is quite simple. So you can go to Splaterro.com, do our quick application. takes five six minutes. We're mostly qualifying on the home itself and the equity that's in that home, so the value currently, and then the first mortgage, right? We're often behind their first low-rate mortgage that they want to keep in place, so we need to understand that very little, but some borrower qualification actually adds. Where's their FICO score, right? We can go all the way down to a 500 FICO, and we want to make sure people don't have recent bankruptcies or recent foreclosures. But for the most part, it's about the home and the actual equity that's in the home.

Michael Gifford 22:24

We charge an origination fee that's 4.99% and the homeowner pays that at closing, so that's paid at closing. Then they don't make any other payments until they're ready to repurchase their investment. Usually, that's when they are going to sell the house or refi the house. Most people think about this like a bridge product, knowing that in the next five to 10 years, I'm probably going to sell this house and upsize or downsize, and and or you know maybe the rate environmental change, and I'll refi out because often even after we extend funds, we're so low leverage with their first lien that these homeowners still have an incredible amount of home equity available to them after we've given them funds.

Keith Weinhold 23:02

Yes, you need to understand that first mortgage pretty well, like you said, because I imagine if there's a lien on the property, I think you touched on it. The HEI position, which you have, occupies that second or even third mortgage position.

Michael Gifford 23:17

Predominantly we're in second position, and that's because you know most homeowners refined eight to 10 years ago when rates were low, so they do have that three and a half 4% mortgage that they want to keep in place and not change. That's unique to the product that we can you know record behind that, and then they keep that in place.

Keith Weinhold 23:36

So for the you, the listener, as you're weighing HEIs in your head, you probably want to ask yourself some questions, and maybe Michael can help us answer some here, including how long do I plan to stay in this home or own this investment property? How strong is my local housing market? Just how much appreciation could I be giving up? Am I willing to share future equity gains? And I think another germane question is now: Can I comfortably handle monthly HELOC payments instead, and the pros and cons with using a HELOC, a home equity line of credit? Can you talk to us some more about that and weigh those trade-offs, Michael?

Michael Gifford 24:18

Yeah, we tell every homeowner to explore all their options, right? So it's not even just the monthly payment from HELOC, but also the qualification process, right? As we see in very public numbers for mortgages, the higher spectrum of the FICO scores are often the only ones getting originations these days, right? The qualification process for HELOC has gotten pretty strict, so that's certainly first and foremost, where to start. The next is, of course, yeah. How long are you going to stay in the property? The interesting part about our product, to go back to our prior example, is if we're owed say 20% in the future, that never changes. It's always 20% So you know, the home goes up, the home goes down. It doesn't actually change. It never goes to 25 or 30% It's just. Always 20% of that home value with that safety cap. So if you do feel like you're in a market that appreciates rapidly, right, or you could be having rapid appreciation in your home price, we have that safety cap in place. Let's just say your home quadrupled in a year, we have that safety cap in place of 17 nine nine. So you're never going to exceed that on an annual cost.

Keith Weinhold 25:20

You know, Michael, I find it amazing how many homeowners-not so much income property owners, but homeowners-they don't realize that if they have a three and a half percent mortgage and they want to get cash out and refinance it at today, say, seven and a half percent rate, they don't realize that they don't have to refinance the entire thing, and they can even take a second mortgage as a HELOC and leave that majority three and a half percent interest rate portion in place as a first mortgage. But with that being said, some are aware that you can take out a HELOC second mortgage. Talk to us some more about the pros and cons specifically of using a HELOC versus a home equity investment.

Michael Gifford 26:00

HELOC versus home equity investment, an HEI is much easier to qualify for, as the points we've already talked to, right? No income requirement, no income verification. You have a lot of homeowners that might have lower incomes or incomes that can support more debt, or maybe you're a small business owner, right? Maybe you're starting a business. The traditional financial institutions don't really like that as far as lending to you, and so makes qualification difficult. You also often, for many HELOC products, need a 700 plus FICO. A lot of homeowners are in the sixes, so that makes it difficult to understand. The biggest one though across the spectrum of homeowners is you have to make a monthly payment. So as soon as you get funds up from your HELOC, you're going to extract those funds. Some will even have restrictions, like you can't pay it off for six months, or there's prepayment penalties, or something else.

Keith Weinhold 26:47

Right.

Michael Gifford 26:47

ut you have to start making a monthly payment to them immediately. This is none of that. There's no prepayment penalties. You can pay it off whenever you want, and there's no monthly payments ever. So a lot of homeowners look at those two things: ease of qualification and no monthly payments as pretty big factors, no matter what their situation is, and that's why they're seeking alternatives to kind of the few traditional financial vehicles that people usually utilize in this situation.

Keith Weinhold 27:14

It can be difficult to explain why someone would not want a HELOC second, even if they don't draw against it, that way it could be there for access in the case of emergencies. So it sort of has this checkbook ability for you to draw against your HELOC when you want to, or just leave it with a zero balance. Is there any flexibility like that with HEIs?

Michael Gifford 27:37

We don't. You know, we extend the funds at closing, so the homeowner receives them. If they want to pay us back, they can pay it back in full. But that's not the same where it is, you know, a true line of credit as noted in HELOC.

Keith Weinhold 27:49

No, no, you talked before about a disconnect between being house rich and having accessible financial flexibility. Tell us more about that.

Michael Gifford 27:59

Yeah, you know, a lot in our financial system rewards very high income and very high credit score. And if you don't have one or both of those, it's very difficult. No matter how much equity you have in your house, to access it, even at lower leverage rates, right? If you have had some credit troubles, your options slim pretty quickly. No matter how much equity you have in that house, and that and that makes it difficult for a lot of homeowners, right? As costs increase, school tuition, whatever it is, increases. It's hard for a lot of people to make these monthly payments, and so you know, no matter how much equity you have in your house, qualification is still difficult for a lot of products. And as the interest rate environment ticks up, or if you believe it's going to be higher for longer, or even though it's you know not historic highs, it's still higher than it was a handful of years ago, and so that makes qualification even more difficult for folks.

Keith Weinhold 28:49

We've compared HEIs to HELOCs. What about comparing them to home equity loans and cash out refinancing?

Michael Gifford 28:56

Yeah, I mean the biggest one there for sure is a cash out refi. A lot of people want to keep that low rate mortgage in place. So if they have a three or a 4% rate, you know, I wish I had a crystal ball to be able to tell you when that's coming back. But a lot of people want to keep that in place, and so that included what you didn't ask about. But it includes reverse mortgage, right? A lot of people don't realize that you're going to get a reverse. You got to refi your first out. So that is really the big benefit of this as well as you're keeping that low rate mortgage in place, so your monthly payments aren't changing after you receive your funds.

Keith Weinhold 29:30

Tell us more about home equity investments. Some of the pros, some of the risks. Maybe something I have not thought about asking you.

Michael Gifford 29:40

Yeah, I think we've talked a lot about the pros. I think that you know we encourage all homeowners to explore all their options when they're looking to access the equity in the home, and then choose one that's right for them, their situation, and their timeline. Of course, the interesting part that we haven't talked about is our timeline. Right, we're making an investment that's as long as you're. First mortgage. So if you have 25 years left on it, we're going to give you funds for 25 years. Yeah, a lot of time when you use other products, you don't have that same term. If you have anywhere less than 10 years, we'll still give you the funds for 10 years and a max of 30 years. So we do what's called maturity match. We match the first liens maturity.

Michael Gifford 30:17

So when you make your last mortgage payment, you also then will pay us back at whatever point in the future that is, that's definitely a pro, right? There's no sort of short term. Hey, this is you have this money for five years or 10 years, and you might be uncertain. I'm like, I don't know if I'm going to sell this house or move out of this house in the next 10 years. What if the mortgage environment's worse, right? I don't want to refi out into a very high rate in 10 years. We don't know what's going to happen, so that's definitely a pro. I'd say the cons. If you can qualify for a traditional financial product like a HELOC, oftentimes they're a little lower in cost than we're going to be, right? So it could be a cheaper route as far as APR, but there's trade-offs in that. You're making those payments that we talked about. You have to be able to qualify for that product. That's really the biggest con I would say about this product. Outside of that, most people once they understand it and hear about it, they can't believe it exists, and they can't believe they didn't know about it before.

Keith Weinhold 31:08

We're talking with Michael Gifford of Splitero about HEI's home equity investments, where his company gives you a lump sum of cash upfront in exchange for a share of your home's future value, so it's not a loan. And for you, the homeowner or income property owner, there are no monthly payments and no interest. You pay back the company later. Tell us more.

Michael Gifford 31:37

I think that you know in today's environment, and both the real estate and the interest rate environment, a lot of people are locked into their homes, right? They've accreted all this value. They don't want to move because if they move, they have to change their mortgage, and that changes their monthly payment, right? Some call it payment shock. So you have the lock-in effect where they're locked in their house, and then they also have payment shock. And you know, it seems like the weather forecast, where there's a new term for these things every sort of every few years, but because of that, people are exploring alternative options that they haven't looked at before. We're one of those. We've been around for a number of years now. We operate in 18 states, and so we're helping homeowners really see that there are more options to access their home equity than just another you know, traditional product.

Keith Weinhold 32:23

Michael and I are doing a remote interview. He's in San Diego. Over Michael's shoulder on his desk, I can see a Los Angeles Chargers helmet. I was careful not to call it a San Diego Chargers helmet. That was the former home of that team. They have a really good quarterback, and the reason I'm bringing this up is because you have sports partnerships, which is really interesting. Tell us about that.

Michael Gifford 32:48

Yeah, we have a few sports partnerships. The Los Angeles Chargers, as you mentioned, have been great partners for us. We help them build a beautiful content studio where they film a lot of their broadcasts throughout the week, talking to players, coaches, you know, talking to matchups for the coming weeks. Great show there on YouTube in stadium. You'll see all of our assets. A lot of this is because you know a lot of the work that Splatero does is still on homeowner education. People call us. They say I've you know a couple $100,000 of equity in my house. How can you help? You know, I've never heard of you. And so we've had a few partnerships. We also partner with the Los Angeles Kings, which has been just incredible for us. Great organization and AEG, their owner across their plethora of assets. I would say, and so the sports partnerships have really helped us help consumer realize that you know we're a real company with a great offering, and people should check it out. And they've been great partners for us. We're homed in Southern California. I'm in San Diego, as you mentioned. Southern California is a very important market. We want to be able to invest these dollars in our backyard and make sure that homeowners in Southern California have the best options when they're looking to access the equity in their home.

Keith Weinhold 33:55

Whether you're personally helping Chargers quarterback Justin Herbert with his own home equity needs or not, Splitero is the official home equity partner of both the L.A. Chargers and the L.A. Kings. Well, Michael, it's really been interesting learning about this product because it's timely for a lot of people. If someone wants to learn more, what's the best way for them to do that?

Michael Gifford 34:18

splitero.com is the easiest way for them to do that, they can go through our application process. Only takes a couple minutes, or call us. We have our licensed homeowner advisors on the phones. They're willing to and able to explain our product, but also alternatives that we've discussed on this show. All of them have a ton of experience in the mortgage world, and so any homeowner situation, they're able to talk through and help them guide them to the right decision.

Keith Weinhold 34:43

Before I ask you if you have any final thoughts, that is sp l i t e r o splitero.com. Any last things that we should know, Michael?

Michael Gifford 34:55

That's it. I appreciate the time. You know, we're here trying to educate homeowners and help them access. The equity to really better their lives. We talked about relief earlier. We hear a lot of really unique stories from homeowners who came to us because they didn't have any other option, right? Or they're in a really difficult time, and us being able to give them that lump sum of cash allows them to do pretty powerful things. And so we hear a lot of great stories, and we're excited to help more homeowners in our markets.

Keith Weinhold 35:22

This should be able to help a lot of people. Thanks so much for coming on to get rich education.

Michael Gifford 35:27

Thank you, appreciate it.

Keith Weinhold 35:34

Oh, it was interesting to learn more about HEIs. When you initiate one, the lump sum cash windfall that you receive is generally not taxable. Don't expect to pay any tax up front, though you aren't making loan payments since it's not a loan. You still have a financial obligation secured by your home. Splitero records a lien against the property, typically subordinated in a second position, like we touched on there. If you think that an HEI is of interest to you, you'll easily see that you can get pre-qualified in minutes. Or if you just want to check it out further, again, it's there at Splaterro.com. Next week on the show, we expect to hear from a billionaire who is also the best-selling author of the 80/20 principle, also known as the Pareto principle, that ought to be deeply interesting. You've been listening to episode 628 of Get Rich Education. Keep growing your means with me every week to make sure that you hear me again, tap, follow, or subscribe either of those buttons wherever you're listening. It's free, and it helps you catch the next episode of the show. I'm Keith Weinhold. Don't quit your daydream.

Speaker 2 36:57

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.

Keith Weinhold 37:25

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

Keith explores U-Haul's truck-to-storage marketing strategy before turning to the shifting housing market.

Housing intelligence analyst Rick Sharga joins him to discuss rising mortgage rates, affordability, regional home-price trends, and how inventory is shaping sales.

They also explore builder incentives on new construction and what delinquency and foreclosure data may signal for investors.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. Fannie Mae creates a housing market assessment of 100 economists and market analysts. We're talking to one of those 100 today. How much are home prices really increasing? Also, supply level, housing demand, and are there threatening cracks in the delinquency numbers and more today on Get Rich Education. For years, I've sent listeners to Mid South home buyers in Memphis, and for years I've heard the same thing back: Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock and Dallas with its classic renovations and now brand new construction. For the first time in years, there's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years. It's called the Triple Five: 5% property management for five full years, half their standard fee, and Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the Forever Five. That's 5% management for as long as you own the property plus special cash pricing. With 6200 homes under management. Mid South is the place to turn for turnkey real estate. Book your free investment strategy [email protected]. That's midsouthhomebuyers.com.

Speaker 1 1:36

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 1:53

Welcome to GRE from Lebanon, Pennsylvania, to Lebanon, Oregon, and across 188 nations worldwide. I'm your host Keith Weinhold, and you're listening to Get Rich Education. Before we analyze today's market with our housing intelligence analyst guest, you know there's a new super interesting real estate strategy out there that seems to be getting traction. What makes it fascinating is that it starts out as a customer looking to rent a moving truck, and then they end up renting real estate from a landlord. Now, do you think that this is manipulative, or is it just a crafty and savvy marketing strategy? Here's how it works. U-Haul uses a truck rental as a gateway to a longer-term self-storage customer. It's a natural cross sell. Someone moving belongings. Well, they might also need somewhere to put them. That's part of the reason that really I think this is more about savvy and less about manipulation. Here's how this U-Haul strategy works.

Keith Weinhold 3:05

All right, first you attract someone with an immediate need. Okay, a person that's searching for a moving truck from a place like U-Haul. That's a customer who is already in the middle of a move. When that customer is reserving the moving truck. They're offered a free month of storage with any qualifying one-way truck or trailer rental. Just one, only one free month of storage, and you could probably see where this is going. This is what U-Haul's doing. They're solving a related problem at the right moment, for the person that's moving, their new home might not be ready. That customer might be downsizing, or everything might not fit. Free storage makes saying yes easier when moving expenses are already piling up. Whether the customer wants the free one month of storage near the location they're moving from, or near the location they're moving to. Either way, we know human nature. Come on.

Keith Weinhold 4:09

Once belongings are in that storage unit, customers who still need the storage space are going to continue paying monthly, month after month. In a lot of cases, this might go on for years because moving everything out of that storage space now that would require time, effort, and potentially having to rent another truck from U-Haul too. So, what U-Haul did is that they turned a short one-time transaction of a truck rental into recurring revenue. The business logic is that the truck brings in the customer, and then the one free month that transitions them into storage, and that ongoing need keeps them renting. It starts out with a person saying, "I only need a truck this weekend, and then it becomes, "I'll use the free storage until I get settled, and that need that they thought would be temporary can last for months. And that is the U-Haul storage conversion strategy-pretty savvy stuff. Now, when it comes to charging people rent or being a savvy business person, do you think that Donald Trump has ever slept in a tent? Let's see.

Rick Sharga 5:30

Ever slept in a tent?

Donald Trump 5:31

Yes, I did in camp when I went to camp.

Rick Sharga 5:37

Where did you go to camp?

Donald Trump 5:38

I went to a camp hilltop up in Binghamton, New York, and it was okay. Does anybody know?

Rick Sharga 5:46

I'll be darned! Is that Bill? Great. Yeah. Did you charge the other kids rent?

Donald Trump 5:50

I know. I started looking. I started thinking about it. Started thinking about it.

Keith Weinhold 5:55

Hahaha. That is from the David Letterman show back in 2007. So this is when Trump's show, The Apprentice, was popular, and well before Donald John Trump became president. Thank you. I am grateful for you attending GRE's last live properties webinar recently. I hosted it along with the provider Mid South Homebuyers in Memphis. It was almost like a party. We had 410 registrants. So much involvement from you, and so many questions. People writing in the chat box how this show means so much to them. You know, seeing that, reading that during the event, like that was almost enough to make me cry. I didn't bring this up during the event because I didn't want to put the attention on myself, but I did see that appreciation you have for the show here, and I want to sincerely thank you for that. We crossed the 12-year mark here. Yes, episode one of the Get Rich Education podcast was released on october 10, 2014. This is 12 years of delivering a new show every week, 52 weeks a year, and never replaying an old episode. Always fresh real estate content.

Keith Weinhold 7:01

You definitely know where to find me, and when it comes to reliability, gosh, don't you wish that a mortgage lender first like understood investors? How about if a credible lender were built by an investor for investors with real humans and no call centers ever, and this lender actually taught you the math and even ran it with you. Education first. I just described Ridge Lending Group. That's why it's where I get my own loans. You can do that too for your next investment property. Start at RidgeLendingGroup.com. That's how they operate there at Ridge Lending Group. Now, back in May, you remember that I released an episode, and its title was "Our Most Important Message in Years, and that message sure is coming true. That was episode 606. Back then, you remember how I articulated basically the effects of the Iran War and the wave of inflation that it will bring, and how that's going to change the bond market and supply and the replacement costs of homes and the mortgage rates. Our guest and I will touch on those themes and more about both the good and the bad of today's housing market. We'll also spotlight where some investor opportunities are. I'd like to welcome back to the show a returning guest who I first learned about through a mutual real estate friend three years ago, and he's really become quite a regular here because he is so knowledgeable. He's a longtime housing intelligence analyst, and he's the president and CEO of the C.J. Patrick Company. Oh, it's a warm welcome back to, like me, a native Pennsylvanian, Rick Sharga.

Rick Sharga 9:24

Thanks for having me back, Keith. Always a pleasure to be here and share thoughts of our old home state,

Keith Weinhold 9:30

the Keystone State. And you know, Rick, you look at a lot of the same parts of the housing market that I do, but you also look at some parts that I don't look at very often. For example, delinquencies and foreclosures, which is something that we can get into. Just overall, what are your thoughts about the housing market as it stands today?

Rick Sharga 9:50

Well, as we speak today, the market is sort of in shock because we've seen mortgage rates jump up as high as seven and a half percent. In a year when most forecasts were expecting mortgage rates to go into the low sixes and maybe even the high fives, I think the market is kind of going through a transitional period trying to figure out who can afford what, whether people can actually afford to sell their homes, and how we adjust to a seven handle after we we had just gotten used to sixes not too long ago, so a little bit of frustration in the housing market right now. I think we've seen things slow down a bit, and there are implications for the path forward and for things that you wouldn't think about, like the impact of higher mortgage rates on on foreclosures. So there's all sorts of things going on right now.

Keith Weinhold 10:42

Right before the war in Iran began, Mortgage News Daily tells us that mortgage rates fell to 5.98% They've been up about one and a half percent just since that time, about seven months ago. And yeah, you use the word shock, Rick. I've been thinking the same thing, you know, people are going through an adjustment period with today's normalized interest rates-not historically high, but normalized interest rates amidst the somewhat healthy economy. 30 years ago, the economy was booming amidst the advent of everybody starting to use the internet, and now it's AI. Back then, 30 years ago, the federal funds rate was one and a half percent higher than than it is today, and mortgage rates were 7.8% back then. So I'm talking about 1996. This is four years before the.com bust and five years before a recession occurred, and back at that time, both home prices and rents grew substantially during that period. Even though affordability was better then than it is now, in fact, from 1996 to 2000, cumulatively, home prices grew 21 percent, and rents grew 14%. Now, pretty normal historic clip. So really, my point is that today's economy is fairly healthy. Rates have normalized, and now rather than the internet boom, we've got the AI boom. You use the word shock. Yeah, people need to adjust.

Rick Sharga 12:17

Yeah, and I think it's important when we talk about affordability, which is what you're getting at there right now. If you factor everything in, we're probably in the second least affordable period on record in terms of home prices. If you go back to the the least affordable time, that was probably in 1983, and the culprit there was mortgage rates that were 1819, 20, 21% The people were doing celebratory dances if they got a mortgage rate at 12%.

Keith Weinhold 12:48

Right.

Rick Sharga 12:48

And so you look at things historically, and you've pointed out correctly that you know at even at seven and a half percent mortgage rates, you know we're below the long-term average, which was 7.7, 7.8%

Keith Weinhold 13:01

Yes.

Rick Sharga 13:01

However, home price growth has outpaced wage growth significantly over that period of time, and we're coming off a very unusual set of circumstances in the housing market. Something that's really never happened before. When we got into COVID, and so we can we can blame a lot of this on COVID, and for the conspiracy theorists, we can blame a lot of this on the Federal Reserve. But the Federal Reserve took extreme measures to try and prevent a depression in the economy because nobody knew how bad things were really going to get, and we were in that zero interest rate period for some period of time, which drove mortgage rates down into the twos and threes. That pulled a lot of demand forward. People came out of everywhere to buy houses at historically low mortgage rates, and so home prices went up about 47% in the space of two years. And at the end of that, the Federal Reserve, in order to get inflation back under control, started raising the Fed funds rate, which drove mortgage rates up into the really as high as 8% at one point. So we saw property values go up by 45 to 50% Then we saw mortgage rates double. And if you look at at historical numbers from Freddie Mac, what you'll find is that in the history of the United States, we'd never experienced a period where mortgage rates doubled during a calendar year, and in 2022 they doubled not in a calendar year, but in a matter of a few weeks, and that sort of shock to the ecosystem. That one-two punch, extremely high price appreciation, followed by a doubling of mortgage rates, even though the mortgage rates aren't out of that long-term historical norm, was enough to kind of knock the stilts out of the housing market. So we've had a very different house market crash this time. It's not that prices fell 20, 3040, 50% It's that we went from 6 million sales to. 5 million, and then to 4 million, and we've been stuck in this 4 million range now for the last really three and a half years. There was a lot of hope that we'd start to feel more like a recovery in 2026, until the war in Iran started. Oil prices went up, took bond yields up, and took mortgage rates up with them, and so we're in a very unusual market in terms of housing right now, and it's a difficult scenario, particularly for first-time homebuyers who didn't experience that growth in home equity that people who owned homes back prior to 2022 did.

Keith Weinhold 15:36

I characterize it as we had a supply crash around 2020 or 2021, and that was followed by a transaction volume crash. And you know, it's funny, Rick. Actually, when mortgage rates started their sharp increase in 2022, my early reaction was like, you know, this is not so bad. A return to normalcy. You know what's with all this artificial intervention? There should be a cost to money. I mean, this is good, but you know, after three years of this slow transaction market, I don't really feel that way anymore.

Rick Sharga 16:13

People ask me a lot of times what's going to fix the housing market, and I give them the same answer, which bothers them because it's a boring answer, not something they can impact. It's time, and when 2022 happened and mortgage rates doubled, one of two things was likely to follow: either one, home prices would crater in order to fix affordability, or two, and this has happened before historically, we would go through an extended period of time where things would just slow down to a crawl, where sales volume would slow down, where home price appreciation would slow down, and it would give wage growth a chance to catch up. And during that period of time, what hope was was that mortgage rates would not necessarily go back into the threes and fours, but would come down at least a little bit. And over time, those three legs of the affordability stool, if you will-home price appreciation slowing down, wage growth continuing, and mortgage rates kind of flattening out-would improve affordability enough that people would start to come back into the market, and we started to see that. If we got into numbers last year, you found that there were actually more people who had a mortgage rate above 6% than below 3% and that's the first time that had happened since 2022.

Rick Sharga 17:37

So things were starting to get back to normal. We ended the year with quite a bit of momentum in terms of home sales, the last five months of the year we had higher year-over-year home sales, and price appreciation was slowing down. Everything was in place the way we were hoping, so that 2026 could be sort of an inflection point and lead the way to a recovery. Then Mother Nature weighed in in January and February, we had unusually severe weather in the Northeast and Midwest. I think home sales were down in the Northeast about 8% in those first two months because of bad weather. And as we started to recover in March, the war in Iran broke out and mortgage rates jumped. And surprisingly, with all that bad stuff happening, with inflation getting higher, with gas prices going higher, consumer confidence being at an all-time low, with all of that, if you go through the end of August, home sales are actually up 1.6% year over year. So there is a lot of pent up demand out there. We have a population that's aging rapidly into home buying age, and would like to become home buyers, just waiting for market conditions to allow them to do so. And unfortunately, now with mortgage rates up a full point higher than they were a year ago at this time, it's tough for people to at least get through the psychological barrier, if not the economical barrier.

Keith Weinhold 19:01

Yes, and I think the fastest way to relieve pent-up demand is with a drop in mortgage rates because wages aren't expected to increase as sharply and as quickly as mortgage rates can decline, and home prices continue to stay pretty stable. But Rick's got some slides prepared for us, and Rick, why don't you go ahead with your housing market detail? And for those of you in the audio only, Rick is really good at describing things for those that don't have the visual aid.

Rick Sharga 19:32

Thanks, Keith. Yeah, we'll jump in, and this is kind of a recap of some of the things we've already talked about to start with. Higher mortgage rates, you and I have been talking about quite a bit already, really have contributed to worsening affordability. So the market was starting to feel at least marginally more affordable. So things weren't affordable for everybody, but more homes were more affordable for more people, particularly those, and I'm sure you've talked about. In sort of the upper leg of the K-shaped economic recovery, if you break that K into two parts, the upper half is doing pretty well, and actually is where most homeowners reside. If you look at the lower half of that K, it's predominantly renters, and those renters need whatever breaks they can get to become homeowners, and these higher mortgage rates certainly aren't helping. For your listeners who are wondering about when rates will go down, the short answer is they're unlikely to go down at all until we get oil prices back under control, which means not until the war in Iran comes to a conclusion.

Rick Sharga 20:38

Very likely, because that drove bond yields up, and bond yields drive mortgage rates, but the bond markets are also concerned about the $40 trillion federal deficit, which leads the Treasury to print more bonds and sell more bonds in order to pay down the debt, and so they're now competing, and it also is a little bit concerned about the massive investment in data centers to support the growing AI business. So all of that is kind of in this big competitive scrum, if you will, which is causing the bond sellers to increase yields in order to sell these things off. So even once we get oil prices back under control, the likelihood of a huge drop in mortgage rates isn't great, but anything even back in the sixes right now would probably be appreciated by buyers.

Keith Weinhold 21:29

My audience knows that I personally don't make mortgage rate predictions. I think it's a fantastic way to be wrong, but I recently found it noteworthy, Rick, when Cotality's chief economist Selma Hep, to paraphrase her, she said that mortgage rates are not going to get down to levels where mass buyers want them for at least three years.

Rick Sharga 21:49

I think she's probably spot on. If you look at recent revised forecasts from the Mortgage Bankers Association, from the economics team at Fannie Mae, they've all raised their mortgage forecast for 2027 to be no better than the high sixes, and the likelihood of us being in the low fives or high fours, absent a huge recession or another global pandemic, really isn't particularly strong for the next few years. So I think Selma's probably spot on. We have seen home prices continue to increase, according to the National Association of Realtors. Sales prices increased on a year-over-year basis for the 38 th consecutive month. But it's important to note where these price increases are landing. So, the NAR said the prices went up by about 1.6% year over year. In the same month, the rate of inflation was 3.4%. So, if you look at a home price in adjusted dollars, if it went up 1.6 percent year over year, it's actually cheaper than it was a year ago. And so, home price appreciation is not keeping pace with either the rate of inflation or wage growth, and wage growth hasn't been exciting. But even at 3.1% which was the most recent number, wages are going up faster than home prices. So over time, this does have a little bit of a mitigating effect on affordability, and this is true no matter whose price appreciation numbers you're looking at. NAR had it at 1.6 percent. The FHFA, which is the government body that controls Fannie Mae and Freddie Mac, had it at about 2.3% in their most recent mark. And there's a report that Fannie Mae puts out that's based on the assessments from 100 different market analysts and economists, I'm honored to be one of those 100. But our collective number for the year is probably between 2.1% and 2.2% annual growth. So, for all intensive purposes, home prices have flattened out. And what's important to note for anybody who's looking to invest, anybody who's looking to buy a home, is these national numbers are useful, but in your local market they're useless. If you look at the top 300 metro areas, for example, across the country, what you would find is that about 54 of those markets are seeing home prices actually fall year over year, and a lot of those markets are concentrated in in Florida and Texas, that Gulf Coast region in particular.

Rick Sharga 24:27

There are a handful of markets where prices accelerated rapidly in the post-COVID era. Markets like Austin and Denver, Phoenix, Las Vegas, Seattle, Atlanta, and we're seeing some clawbacks, some some price corrections in those markets because they accelerated too high and too quickly, but if 54 of the top 300 metros are seeing price declines, that means that 246 are seeing prices go up, and a lot of the markets where prices are going up the most rapidly are in the. Northeast and Midwest, because there's a very strong correlation between inventory levels of homes available for sale and price trends. And by the way, those price declines for people who continue to be promoting the coming devastation of home prices in the country. I think this is one of the first things you and I ever talked about on your podcast. The markets with the biggest year-over-year price declines right now were Austin and Myrtle Beach, South Carolina, and in both cases, that enormous year-over-year decline was 4% On the other hand, you have markets like Wausau and Hartford, and and places in the Midwest and Northeast where prices are going up 567, 8% year over year. So really important to know what's going on in your local market or whatever local market you're looking to transact in, because the prices and the price trends vary pretty significantly across the country.

Keith Weinhold 25:58

And Rick, we're talking about home price change. It's interesting. There are so many different ways to divide up the market. A lot of our listeners and viewers buy entry-level homes, oftentimes single-family homes in the 300 something Ks and less. Do you have any sense for how much home price growth there is in entry-level homes versus the national number?

Rick Sharga 26:20

You know, you would expect that entry-level homes would see prices going up at a higher rate than, say, luxury homes. It's actually not the case right now, and one of the reasons I believe is not the case is because there's very little entry-level inventory available anywhere, and a lot of the inventory that is available is in a pretty sad state of disrepair, so really can't capture significant price increases. What we're seeing right now is that a lot of people in entry-level homes locked in at lower mortgage rates and simply can't afford to move up, so they're keeping these homes off the market, and for whatever reason, the again the the limited number of homes that are available and usually supply and demand would work to drive those prices up isn't working as much as you'd expect, at least in the data that I'm seeing. And again, I think it's partly because these the homes that are available tend to be older homes that need a lot of work.

Keith Weinhold 27:24

Yes, and with affordability for everything being difficult, yes, you can see how perhaps some of these people that have lived in these entry level homes for a long time, locked into low mortgage rates, might not have that much discretionary income for renovations and such. And boy, this really makes it valuable for a lot of the providers that we deal with that build new construction single-family homes, often in the three hundreds or less. That's what America really needs.

Rick Sharga 27:52

Yeah, I'm seeing the same thing you are when I look at investor data, Keith. The sweet spot is in the three hundreds, probably. Interestingly, the big institutional investors buy even cheaper when they're still buying, and they they really are focused on less expensive markets and smaller, less expensive properties that do need some work. But a lot of those big investors are actually redeploying their capital now into ground up construction, and partly that's because of the new legislation that was passed recently, the 21st Century Road to housing bill. One of the other interesting things, and this looks like a contradiction to what we just talked about, was while sales prices continue to go up, list prices are actually down for the 10th straight month, and so there's a difference between the final sales price, which is up year over year, and the list price, which is down just a smidge, about 1.3% year over year as well. What that suggests to me is that the sellers are getting a little more rational about their list prices today.

Rick Sharga 28:56

We do still see that a very significant number of properties that are sold are taking a price reduction. Depending on whose numbers you follow, data from Realtor.com that says about 20% of listings are taking a price reduction. They're probably talking about all listings, whereas some other groups are showing 40% list price reduction number. Like 40% of all homes are taking a list price reduction. I believe that refers strictly to properties that have been sold. And again, these aren't huge price reductions, but the fact that we're starting to see people get a little bit more rational with their list prices, the fact that we're seeing a continually high number of list price reductions also tells me that buyers realize they have a little bit more room to negotiate, and are probably negotiating a little harder before they close that transaction.

Keith Weinhold 29:48

You're listening to Get Rich Education. We're talking with housing intelligence analyst Rick Sharga with the C.J. Patrick Company with detail about today's housing market. More when we come back.

Keith Weinhold 29:58

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Todd Drowlette 31:34

This is the star of the A and E show, The Real Estate Commission, Todd Drowlette. Listen to Get Rich Education with my friend Keith Weinhold, and don't quit your daydream.

Keith Weinhold 31:54

Welcome back to Get Rich Education. I'm your host Keith Weinhold. We're going deep on the state of the housing market with housing intelligence analyst Rick Sharga, and Rick, I know you've pointed out a strong correlation between inventory and prices. It's like economics one on one is supply demand, and so much of price change has had to do with supply in today's market.

Rick Sharga 32:17

Yeah, it's really interesting, Keith. When you start to take a look around the country at inventory levels of homes that are available for sale, there's about a 4.6 month overall supply of homes available for sale, and that's a combination of how many homes are listed and how quickly they're going through that sales transaction. So it's not just raw numbers; it's kind of a calculation. But if you look at just the kind of raw numbers of inventory, we've been going up since 2021 at double digit inventory growth every year 15 20% more homes available for sale until late last year, and if we're looking at this year, inventory levels are up probably less than 2% year over year, so we're seeing fewer properties listed for sale. And in fact, the only reason inventory numbers are up is because it's taking a little longer to sell them once they're on the market nationally. The median number of days on market is about 60 days, but that varies wildly. If you're in a market like Denver, it might be taking you 90 days if you're in coastal California. It might be taking you 14. So it really depends on where you are in the country. But if you look at where we are compared to a year ago, almost every state in the union has seen at least a modest increase in inventory.

Rick Sharga 33:40

There are a couple of markets where prices have been falling. Markets like Florida, parts of Colorado, areas like Boise, Idaho, where there's been a retrenchment. So we had too much inventory. Prices started to fall, and so we're seeing inventory pulled back a little bit off the market. And if you go back as far as you know prior to COVID, when we had that buying boom, probably only about 19 or 20 states have more inventory available today than they did prior to Covid, and a lot of those markets are markets that we talked about earlier: southern markets, Gulf Coast states, some markets in the southeast where prices have weakened, whereas you got a state like Illinois, which is 62% less inventory available for sale. Parts of the Northeast similar numbers, and that's again where we're seeing home prices go up the most because people have to compete for the available properties.

Keith Weinhold 34:36

If you, the listener and viewer, remember the last time Rick was here, we had an episode about is there really a housing shortage? The short answer is yes. We continue to heal. We continue to build more and try to provide more available inventory to get ourselves back up to pre-pandemic levels.

Rick Sharga 34:54

Yeah, and two of the metrics that I look at, Keith, in terms of where the market is going. Are something called pending sales, which is a report that's put out that shows contracts that have been entered into, but the transaction hasn't been recorded yet. And the other is the mortgage purchase application index, people applying for a loan to buy a house, and both of those have been doing fairly well year to date until we cross that 7% mortgage threshold, at which point both of them dropped pretty significantly. So the mortgage purchase applications index dropped to about 13% lower number than it was a year ago, and in in September we had about 6000 fewer pending sales than we had the same time in September a year ago, so these two metrics are usually an indicator of what to expect in the months ahead. And what they're suggesting to me is that September and October home sales are probably not going to be terribly exciting as people adjust to these new higher rates. That said, we had been coming out of a period four consecutive months, starting back in April, where we sold more homes than we'd sold the prior year.

Rick Sharga 36:07

August broke that streak. We actually sold fewer homes than we did in July, and fewer homes than we did August a year ago. And we're coming up to a time in the year where 2025 sales actually were pretty strong for the last four months of the year, so I'm afraid that our our sales comps, if you go year versus year, are going to be challenged for the rest of this year. So the good news is, I mentioned a few minutes ago that at the end of August we were still 1.6 percent ahead of where we were a year ago in terms of home sales. The bad news is, in a best case scenario, I think we're probably going to be flat year over year by the time we get to the end of December. New home sales, interestingly, had a really good month of August. They had dipped down to about 607,000 annual sales in July, but zoomed up to about 684,000 in August.

Keith Weinhold 37:02

Okay, we're talking about brand new construction here as brand new resale. Yeah.

Rick Sharga 37:06

While the resale numbers look like they're flatlining at about 4 million a year, if we were to hold this 684,000 number through the end of the year for new home sales, we would actually surpass a lot of the forecasts for 2026. So, in a lot of cases, Keith, I'm seeing investors buying closeout properties from new home sellers and converting them into rental properties. I was recently speaking at an event in Northern California where I saw a builder advertising 2.9% mortgage rates. So the builders are buying down these mortgage rates in order to entice buyers. They're making price concessions. They're making concessions on fixtures and upgrades to the properties. So you know, for people looking not for a fix and flip investment, but for a rental property investment, don't look away from new home builders because they are looking for opportunities to move some of their assets, and the majority of them are making price concessions. In fact, there's a really unusual thing happening right now, Keith, in that the median sales price of a new home nationally is lower than the median price of an existing home.

Keith Weinhold 38:15

Right.

Rick Sharga 38:16

You mentioned building. I don't want to walk away from that. Housing starts are actually a little bit down year over year. That's true for both multifamily and single-family homes. The most recent numbers in August, we had about 1.27 5 million housing starts. Again, down year over year and month over month. On the other hand, though, building permits are actually up year over year. Almost 1.4 million building permits were issued. So, I believe builders have a good, positive long-term view of the housing market. But in the short term, the reality is they're trying to work through a bit of a backlog. There are 483,000 new homes available for sale at current sales rates. That's about an 8.5 month supply.

Keith Weinhold 39:01

That's a lie.

Rick Sharga 39:02

And normally with new homes, you're looking at a six to seven month supply. So right now, I really do believe what builders are doing is being circumspect about starting too many new projects and trying to work through the inventory they have, so they don't get caught in a position like they were right before the housing market crashed back in 2006, 2007, when they were sitting on about a 13 month supply of homes,

Keith Weinhold 39:28

I'm so glad that you spotlighted this, Rick, as new build homes being a potential opportunity for investors. It's the same thing that I've been telling my audience for over a year, because for more than two years now, builders have commonly offered generous concessions. For example, 12 days ago, I hosted a webinar with our provider in Memphis called Mid South Homebuyers, where they are buying down your mortgage rate to about five and three quarters percent on a 30-year fixed-rate loan, and they're also having their. Property management fee from the normal 10% down to 5% as new build incentives.

Rick Sharga 40:06

That's pretty generous, but it's not out of the ordinary for what we're seeing across the country, particularly from builders trying to wrap up a project. Keep in mind, they want to recapitalize so they can move on to the next build, and so it is an opportunity that is a little bit unusual for investors, historically speaking. Just a few words I wanted to share with you, Keith. You mentioned foreclosures. Right now, interestingly, mortgage delinquency rates are relatively low. If you look at all mortgages across the country, about 4.37% of those, just below 4.4% are in some stage of delinquency. That's lower than the long-term average, which is about five and a quarter percent, and lower than the numbers were prior to the pandemic. The outlier here is the FHA. So FHA loans are running at about a 12% delinquency rate.

Keith Weinhold 40:57

Wow!

Rick Sharga 40:58

And if you look at seriously delinquent mortgages, loans that are 90 days past due or foreclosure, about 6% of FHA loans find themselves there. So, over a half of all seriously delinquent mortgages are FHA loans, and that's despite the fact that FHA mortgages only account for about 15% of the market. So, a very disproportionate share. We talked about markets earlier where home prices have been declining, and if you look at where the FHA loans. So for your listeners looking for potentially distressed properties to buy, what I'm suggesting is the bulk of them in the next 12 to 18 months are probably going to be on FHA properties, and if you're looking for where those are, they have a disproportionately high share of market, starting in Denver, going down to Las Vegas and Phoenix, and then across the southern band of the country. 10% of all FHA loans are in Texas. 10% of all FHA loans are in Florida. 20% of all Oklahoma mortgages or FHA loans, so that's where you're going to see a lot of these FHA loans. They're in markets where property values have been declining year over year, not dramatically, but if you took out an FHA loan with a three and a half percent in Austin and property values are down 4% you're effectively underwater a year later, and if you also look at where insurance premiums have gone up the most for homeowners, it's the same markets. And if you were to look at where student loan delinquencies are the highest, it's also the same markets. So it's almost this perfect storm for FHA borrowers in that southern band across the country, and I suspect if I were to predict where we would see the most foreclosure activity in the next couple of years, that's really where I would be looking.

Keith Weinhold 42:53

Okay, so foreclosure activity a little low overall historically, but heavily concentrated with FHA borrowers, and I mean, there are some reasons for that. FHA versus conventional. I mean, with FHA, typically a smaller down payments used. Oftentimes, that borrower has a lower credit score and a higher debt to income ratio. Consequently, that's why more of them have gotten into trouble.

Rick Sharga 43:16

Yeah, they have less wiggle when they do get into trouble too. So, if you're an FHA borrower and you lost your job temporarily. You may never be able to catch up on your mortgage once you've missed a couple payments. It's in the industry we talk about being, you know, one broken water heater away from a pretty nasty delinquency cycle. The VA portfolio is also experiencing slightly higher than usual delinquency rates. Something for your listeners to think about, by the way, in this relatively high mortgage rate environment, is virtually all FHA loans and VA loans are assumable. Meaning, if you bought that property, you could, generally speaking, take over the loan from the original homeowner and get a second loan to make up whatever difference was required to buy that house, and that's one way to get a mortgage with a lower rate than what you would get on the open market today. Need to be working with somebody who can walk you through how assumable loans work. Not always something you might be able to use necessarily for an investment property, but certainly something worth looking into if you're looking for ways to save some money. We were talking about foreclosure activity. The first legal notice you get that you're in default on your loan is called a foreclosure start.

Rick Sharga 44:34

They're up about 10% year over year, and they're up to about 85% of where we were right before the pandemic hit. My suspicion is that we will be back to pre-pandemic levels by the end of this year. So that's the first stage of foreclosure. We're seeing foreclosure sales up about 6% year over year, but they're nowhere near where they were prior to the pandemic. So something is happening between that initial. Notice of foreclosure and a potential foreclosure sale, where either people are getting their loans modified and making payments, or increasingly a lot of these folks, when they get that foreclosure notice, are selling the property on the open market because they do have some equity and they'd rather protect that equity than risk losing it all to a foreclosure sale. So, again, a point for your investors out there: if you're looking at foreclosure activity, look at those early stages of foreclosures and reach out to the homeowner, because this could be a win-win scenario where you get a property below market value that's not in terrible shape, and you actually help that homeowner avoid a foreclosure and walk away with some money in their pocket, and foreclosure inventory not back to where we're seeing it normally. Prior to the pandemic, we were around maybe 350,000 homes in some stage of foreclosure.

Rick Sharga 45:54

Now we're at about 250,000, but it's the highest number we've seen since the government put all those restrictions in place back in 2020. So net net of all of this, Keith is that for the first time, really in the last seven years, we are on pace to see foreclosure activity to finally surpass 2019 levels. And I don't say that gleefully, and I don't say that dismissively. But even in 2019, we were looking at an unusually low number of foreclosures because the economy was strong. There was a lot of equity, and lending standards were so high. So it's been a long slog since then because of COVID, because of the government protocols that were put in place, and again because there was equity and lending standards. But if your buyers are out there looking at foreclosures, we're probably going to be back to those pre-pandemic levels by the end of this year.

Keith Weinhold 46:46

Okay, perhaps some more opportunity there,

Rick Sharga 46:49

And that's really all I had prepared in terms of prepared comments today, Keith. But there's a lot that we've already covered in terms of what to expect in the housing market. Now, what to expect in the distressed market? Foreclosures, distressed properties in general, still going to make up a very small percentage of overall sales. And for anybody expecting to see a boom in bank-owned properties coming to market or a huge number of short sales coming to market, neither of those appears to be in the cards for any time in the near future,

Keith Weinhold 47:23

and it sounds like everybody sure should get used to this normalized interest rate environment. Well, Rick, this has been great. How can our audience engage with you and what you do?

Rick Sharga 47:36

Well, I'm easy enough to find on social media, Rick Sharga at either LinkedIn or on what used to be called Twitter, you can also visit my website cjpatrick.com. But if you reach out to connect with me on either X or LinkedIn, just mention that you saw the podcast with Keith, so that I know you're not some Russian bot coming to Hackney. And you'd be surprised some of the the invitations I get on social media, Keith, or or maybe you wouldn't, but always happy to connect with people who are looking for information on real estate and mortgages.

Keith Weinhold 48:07

That is spelled S H A R G A. Rick, it's been great having you here.

Rick Sharga 48:12

Always a pleasure, Keith.

Keith Weinhold 48:20

Nice assessment from Rick. Both being native Pennsylvanians, he and I have the same favorite football team, and I've since talked to Rick about it. And wow, he really knows how to break down the NFL X's and O's stuff. One of the opportunities Rick brought to light is particularly interesting: new build home supply at eight and a half months, where six to seven is normal. That's part of what provides the motivation for builders to buy down your rate for you. They want to clear some of that supply. One thing that has not changed is that just regular buy and hold real estate still pays five ways simultaneously when you buy right, such that a total rate of return of at least 20 to 25% each year is not out of the ordinary at all. If you're new to this show, that might sound impossible or high flying or like you're taking some big risk, it is none of those things. This is why real estate has made more ordinary people wealthy than anything else. That's exactly why. And if you're uninitiated on that, I provided five videos for free. That is course level instruction. Me teaching you, and at the end of each video, with a typical property, I add up your rate of return, and it culminates in the grand total at the end of the fifth video. I can't recommend the series more. It's free, and it is wide open available. You don't even need to leave your email address. You can access. That course level video series called Real Estate Pays Five Ways at getricheducation.com/fiveways. You can land there and start watching immediately. Again, it's getricheducation.com/fiveways. That's with the number five. Now you know how I've discussed that waiting for lower mortgage rates is a losing strategy, and you just cannot count on that happening. And I haven't just said that for months; I have said it for years. If you've been waiting for mortgage rates to come down before owning investment property, maybe you think that next I'm going to say you'll be waiting a long time. Yes, you would be, but you might be waiting for something that is already available, and here's what I mean: in select markets, home builders are offering substantial incentives to move new inventory, and one of the most valuable incentives is that aforementioned mortgage rate buydown. With the way the numbers work. That is better than an overall price cut. And some of these providers are doing multiple incentives. They're both buying down your mortgage rate and cutting your property management fee in half, or giving you some other incentive. So while you might see these prevailing mortgage rates quoted a lot higher in the mainstream financial media. Some new build investment properties can come with builder-paid financing incentives that bring your rate meaningfully lower, still into the fives. And it's not always new build; sometimes it's resale property as well. That can change the entire deal and help ensure that you're paid up to five ways at the same time. A lower rate, of course, means a lower monthly payment, better cash flow, and a property that makes sense today, not someday if rates happen to fall someday. But you need to know where these opportunities are, which providers are offering them, and whether the property itself still makes sense after you look at rents, expenses, management, and the local market. This is exactly where we can help you with our GRE investment coaching. Our investment coach can help connect you with investor-friendly properties and providers in markets where the numbers make sense, including a lot of new builds with those rate buy downs and when and where they're available, and they sure are now in Florida, Tennessee, Georgia, Arkansas, Alabama, Ohio, Indiana, Kansas, and more. And see, because we deal nationally, and we do this for a lot of buyers. We have the scoop. We know what kind of offer sellers will accept because we've seen what other buyers have tried and what has worked and what hasn't, and it is actually free to meet with a GRE investment coach if you even wanted to buy something from us, you cannot because we don't have anything to sell. So build your wealth.

Keith Weinhold 49:25

This is why real estate has made more ordinary people wealthy than anything else. That's exactly why. And if you're uninitiated on that, I provided five videos for free. That is course level instruction. Me teaching you, and at the end of each video, with a typical property, I add up your rate of return, and it culminates in the grand total at the end of the fifth video. I can't recommend the series more. It's free, and it is wide open available. You don't even need to leave your email address. You can access. That course level video series called Real Estate Pays Five Ways at getricheducation.com/fiveways. You can land there and start watching immediately. Again, it's getricheducation.com/fiveways. That's with the number five. Now you know how I've discussed that waiting for lower mortgage rates is a losing strategy, and you just cannot count on that happening. And I haven't just said that for months; I have said it for years. If you've been waiting for mortgage rates to come down before owning investment property, maybe you think that next I'm going to say you'll be waiting a long time. Yes, you would be, but you might be waiting for something that is already available, and here's what I mean: in select markets, home builders are offering substantial incentives to move new inventory, and one of the most valuable incentives is that aforementioned mortgage rate buydown. With the way the numbers work. That is better than an overall price cut. And some of these providers are doing multiple incentives. They're both buying down your mortgage rate and cutting your property management fee in half, or giving you some other incentive.

Keith Weinhold 51:16

So while you might see these prevailing mortgage rates quoted a lot higher in the mainstream financial media. Some new build investment properties can come with builder-paid financing incentives that bring your rate meaningfully lower, still into the fives. And it's not always new build; sometimes it's resale property as well. That can change the entire deal and help ensure that you're paid up to five ways at the same time. A lower rate, of course, means a lower monthly payment, better cash flow, and a property that makes sense today, not someday if rates happen to fall someday. But you need to know where these opportunities are, which providers are offering them, and whether the property itself still makes sense after you look at rents, expenses, management, and the local market.

Keith Weinhold 52:10

This is exactly where we can help you with our GRE investment coaching. Our investment coach can help connect you with investor-friendly properties and providers in markets where the numbers make sense, including a lot of new builds with those rate buy downs and when and where they're available, and they sure are now in Florida, Tennessee, Georgia, Arkansas, Alabama, Ohio, Indiana, Kansas, and more. And see, because we deal nationally, and we do this for a lot of buyers. We have the scoop. We know what kind of offer sellers will accept because we've seen what other buyers have tried and what has worked and what hasn't, and it is actually free to meet with a GRE investment coach if you even wanted to buy something from us, you cannot because we don't have anything to sell. So build your wealth.

Keith Weinhold 53:10

You can book a time with a GRE investment coach at a time convenient for you to simply get clarity, look at real opportunities, and decide whether any of them fit your goals, you can open a calendar and set that right now at greinvestmentcoach.com. We can help you build your wealth. It's truly free at greinvestmentcoach.com. Next week, here on the show, a new way to build your wealth through real estate, and it's possible that you've never heard about it before. Until then, I'm your host Keith Weinhold. Don't quit your daydream.

Speaker 2 53:51

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 54:19

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

Keith examines the shift toward a buyer-friendly real estate market and the concessions investors may be able to negotiate.

He speaks with Sharon Lechter, co-author of Rich Dad Poor Dad and a financial education author, about scarcity versus abundance, building income-producing assets, and why action matters as much as access to information.

They also explore women's investing groups, evaluating mentors and AI-generated advice, and doing careful due diligence in today's market.

Sharon shares how her book Old Wealth, New Wealth, True Wealth broadens the conversation beyond money to include family, health, and lasting connections.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. Don't live below your means. Expand your means. And other timeless wealth-building quotes are attributed to the landmark book Rich Dad Poor Dad. We had its co-author Robert Kiyosaki on the show earlier this year. Today, it's the other co-author of the original book. It is mindset and motivation today on Get Rich Education. For years, I've sent listeners to Mid South home buyers in Memphis, and for years, I've heard the same thing back. Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock, and Dallas, with its classic renovations and now brand new construction. For the first time in years, there's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years. It's called the Triple Five: 5% property management for five full years, half their standard fee, and Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the forever five. That's 5% management for as long as you own the property plus special cash pricing with 6200 homes under management, Mid South is the place to turn for turnkey real estate. Book your free investment strategy session at MidSouthHomeBuyers.com. That's MidSouthHomeBuyers.com.

Speaker 1 1:38

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 1:54

Welcome to GRE from Montrose, Colorado, to Monterey, California, and across 188 nations worldwide. I'm Keith Weinhold, and you are inside Get Rich Education. Before we bring in this week's guest, Robert Kiyosaki's Rich Dad Poor Dad co-author, where you'll learn about the way women's investing differs from men's, the money relationship between parents and kids, and a whole lot more about how the 1997 book changed the world. I've got some real estate commentary first. Over the past month, that has turned into more of a buyer's market. Yeah, this environment has turned a little worse for sellers and a little better for buyers. A big part of the reason for this is that mortgage rates, although they're historically at normal levels, they have hit a two and a half year high. Now that part doesn't sound very buyer market friendly, but the reason it is in what's happened is that we already know that mortgage rate buydowns are perhaps the most common concession, especially among home builder sellers, but today, since fewer buyers qualify, you can ask for more concessions than just that. Along with the rate buydown, consider asking for closing cost help too. As a buyer, you can more aggressively negotiate repairs than you could a few years ago, as well. That's more appropriate that you ask. Now I don't know that you want to go as far as to ask the seller to throw in the fridge or the patio furniture, but you can request more concessions than you could previously, and yet it's not so bad for sellers because, depending on the measure that you use, home prices are still up one to 3% over the past year.

Keith Weinhold 3:53

And like I discussed last week on the show, I dug into numbers and I pointed out why concessions like a rate buydown are better for buyers than a discounted price is. If conditions are right, make a move. If they aren't, don't. I know that today's esteemed guest talks about the importance of taking action. You need to have some risk capital in your life-it's the only way that you're going to make it big. All wealthy people have this. It doesn't need to be reckless risk, but you do need a bucket so that you can invest aggressively. Risk capital. Now Warren Buffett, though I don't know if he really said it, Buffett purportedly once asked somebody to show him a billionaire economist. Buffett is still waiting. He has never met a billionaire economist, and the point is that. That's because economists-they just build models. You need to do. You don't get paid for the model. You get paid for the move. With that in mind, let's meet this week's esteemed guest. If you're even a little familiar with the financial education world, this week's guest needs little intro because you know it's really hard to think of anyone more influential in this genre. She is a five-time New York Times best-selling author and has advised 2u.S. presidents on the topic of financial literacy. She was tapped by the Napoleon Hill Foundation to re-energize the Think and Grow Rich books. I happen to know that she was just serving Cardone Ventures shortly before we sat down to speak here. And you know, some people don't actually know that she co-authored the international bestseller Rich Dad Poor Dad, and 14 other books in the Rich Dad series. And you know, frankly, her accolades are too numerous to mention, or else we wouldn't have time for a conversation with her. It includes that she is the only woman ever inducted into the Personal Growth Hall of Fame because she's such a motivator. And today, she's quite an active philanthropist and the CEO of Pay Your Family First. Maybe we'll find out what that is. She has not been with us since 2015. Welcome back to GRE, the incomparable Sharon Lecter.

Sharon Lechter 6:35

Thank you, Keith. I'm delighted to be with you, and I'm just as I said before we even started. I'm so proud of you and the success and the generosity you have in helping people understand the power of real estate. So thank you.

Keith Weinhold 6:47

That's kind of you to say. And you know, Sharon, nearly 30 years after Rich Dad Poor Dad, Americans have more financial content available than they ever have. So why do so many seem less financially prepared.

Sharon Lechter 7:03

Well, I think it comes back to financial mindset, and and I know you agree with this. What happens is we're raised with these old ideas of pinch your pennies, save for a rainy day. Yeah, money doesn't grow on trees, so we we grow up hearing this money negative, money negative, and so we develop a scarcity mindset, and we have to really acknowledge it, and then start shedding it. Because if you think about, we can't afford it. That's a negative, right? So it really reinforces scarcity. And when people start getting successful and they have some money, they start worrying about losing it. And so we have to really, along with financial education, we actually have to help with the mindset change from scarcity to abundance. You know, the whole concept of go to school, get a job, and retire is a thing of the past. And so, there's nothing wrong with being an employee, but you have to realize it's not what you do for your paycheck that determines your financial future is what you do with your paycheck that determines your financial future.

Keith Weinhold 8:07

Well said. You know, even if someone does get some formal financial education, their first teachers are usually their parents, and their parents do tend to reinforce that scarcity mindset. Money doesn't grow on trees, so even if you do get financial education later, you know it's during your formative years when you're impressionable that that scarce stuff sticks with you,

Sharon Lechter 8:29

and you sit back and you watch other people. So all of a sudden you get FOMO, fear of missing out, and yet you still are too fearful to take action. And I think that's why what you do through Get Rich Education is such an incredible gift to people because you are who you hang out with, and if you're hanging out with entrepreneurs and successful people, you're going to have probably it's going to feed your drive and your desire to succeed. But if you're hanging out with people that are just like well, whatever, you know, as Napoleon Hill and outwitting the devil, I share drifting concept. If you're just kind of drifting through life, that's where you're going to stay. You're not going to achieve the goals you set for yourself because you're not paying attention to it and you're not driving towards them.

Keith Weinhold 9:14

Yeah, and I think where scarcity might manifest itself once one grows up into an adult is a lot of times a person thinks they're doing the right financial thing, but it's often misdirected. People don't understand concepts like arbitrage and leverage, and they're concepts that we discuss a lot here. But those things are not complex or arcane. For example, a man will skip a family vacation and work overtime at, say, his medical job in order to make extra principal payments on a mortgage loan with a 4% interest rate. Well, now he and his whole family just lost leverage, arbitrage, and most importantly, lifestyle.

Sharon Lechter 9:58

Time. It's all about time. You know, I talk about you're financially free when the income from your assets exceeds your monthly expenses, and what does that mean? You have your time back, and so you have the opportunity to either spend more time with your family or contribute to society, and that's what has been a lost element. I mean, rich dad, poor dad. When we built the rich dad brand globally. We kind of redefined how people looked at money, and then when I started teaching through the Pullman Hill Foundation and Pay Your Family First, I really wanted to focus people's mindset and start implanting the word asset, asset, asset, asset.

Keith Weinhold 10:35

Yeah.

Sharon Lechter 10:35

You know, and I say assets are sexy to get people to understand that instead of getting asking for overtime or looking for a second job, less buy, build, or create an income-producing asset because then it becomes this 24-hour economic engine working for you, and you don't have to be there. And the more of those you can get, the more that you'll get your time back, and that's the goal. The differential, if you think about the cash flow quadrant, our second book, the left side, employee self-employed. That's you exchanging time for money, and there's only so many hours in the day and so many days in the week. The right side of the quadrant, as a business owner and investor, you have businesses, systems, people working for you. You have your investments, your real estate investments working for you, and so the amount of money you can make on the left side is limited because of the time. The amount of money you can make on the right side is unlimited because we can always get more assets that are generating income to us, and that allows us to have that lifestyle that we deserve,

Keith Weinhold 11:42

sort of assets that pay you versus work that drains you a lot of times, and with this wave of inflation, you know it seems Sharon like this has become even more relevant amidst the K-shaped economy, where I've often reinforced with people, boy, it's rarely been more apparent that capital compounds and labor doesn't.

Sharon Lechter 12:06

Oh, you're so true, Keith. And I think one of the other issues that's really been talking a lot about lately, trying to open people's eyes. There's a difference between being frugal mindset and a scarcity mindset. All right, a frugal mindset is a choice. You're choosing to spend less and keep more. Factual, right? Frugal. I'm just going to fly coach instead of first, so I don't have to spend so much money, right? Scarcity is all fear. It's all fear based. Is I'm never going to have enough, right? And that fear, high emotion, low intelligence. That fear just feeds in us and creates that first step is even harder to take because you're afraid. And so there's nothing wrong with being frugal, if you align yourself with what you keep, how you invest it. Are you investing it in your future? Are you putting in a savings account so you're actually walking backwards instead of forward, and you're investing? And so that's what so many people are doing, particularly women. I had a stat last week: 70% of the holdings for women investors are held in cash.

Keith Weinhold 13:18

I'm not surprised. Women are better than men at some things that might even include investing. But in my experience, I think with what you're touching on is women do tend to be more conservative. They don't think about the opportunity cost of maybe their purchasing power diminishing by 5% annually with money in a quote-unquote safe savings account.

Sharon Lechter 13:39

Yeah, women investing groups actually outperform men investing groups, but that's because the power of the group. Okay, again, your environment, and I think alone, women that fear base comes up, and they're afraid to pull the trigger. They're afraid they're going to lose it, and we find that in every aspect in the business world. Woman makes a mistake and she takes it as a definition of herself, and she carries that mistake around with her forever. Men, oh, that happened. Okay, let's move on. So it's really important to look in in the mirror and say, you know, we each have all the tools we need to be successful. God created us to be perfectly who we are, not someone else, and you have to make the decision. There are three things we can control, Keith, and I know you agree with this: your thoughts, your words, your actions. And when you start with a negative mindset, it impacts what you say, and it impacts what happens to you. Particularly when you're worrying about something, you are causing a physical onslaught to your body. Your negative thoughts you start losing your health, and so when you think about I can't afford it per se, that's a negative statement. Yeah, you just want to go to bed and turn off the lights.

Sharon Lechter 14:57

But instead, if you change the philosophy. And instead, say, "How can I afford it? Do you feel the difference? It opens your mind. It triggers your subconscious mind to go to work figuring out how you can afford it. So, by just changing the thought and how you express it, you change the results. My mother was the queen of worry, so I got a lot of practice, and I still have what I call my little worry storms. But I stop myself, and I go, "Okay, Sharon, instead of focusing on what I'm afraid is going to happen, what I'm worrying about, let's change my thought process, put on a different perspective, and say, I want to focus on what I do want to have happen? It changes everything. It makes you optimistic. It shows you brightness of future. And the world we're living in right now, we all need a little brightness of future. So,

Keith Weinhold 15:51

Don't say I can't afford it. It turns off your mind. Instead, ask how can I afford it. That activates the mind, and that's how something good can happen. You said something so interesting there. I think Sharon that women's investing groups outperform the results from men. Tell us more, including why do you think that is?

Sharon Lechter 16:12

Well, they don't pull the trigger as fast as men do, but because they're together, they do a group analysis and they've got somebody doing the deep dive, somebody who likes to look at the facts and the history, and so because together they feel more powerful, they feel more confident because they're not doing it alone, and the fact that they're looking at that, they're making decisions based on knowledge and information, they tend to outperform. So

Keith Weinhold 16:42

why don't men do that? Do men take on the mindset of more like, "Hey, I'm a rugged individual. I don't need anyone else.

Sharon Lechter 16:48

There's a lot fewer men investment groups. Men tend to invest more individually, or have somebody do it for them, and that you know it's really an issue more as from a women's lens than anything else, but they do outperform typical men's investments.

Keith Weinhold 17:06

Well, Cher, we're talking about a scarcity mindset versus an abundance mindset. I've got to bring up something. Don't live below your means; expand your means. That is a quote attributed to the rich dad world, and I absolutely love it. Tell us more about what is meant by "don't live below your means, expand your means. Because to me, Sharon, it seems like that articulates what people think but don't know how to say.

Sharon Lechter 17:32

And don't know how to do. That's the problem.

Keith Weinhold 17:34

Yeah.

Sharon Lechter 17:35

You know, I was given an incredibly precious gift. I had parents who talked about money at the dinner table? You know, they didn't have a lot, but they built a lot because I often share that I've been a real estate investor since the age of 10. Because my dad had real estate investments, I had to go scrub out bathrooms between tenants. He never learned the power of outside management. He always did it himself. But he also had orange groves, and he said, "Sharon, the oranges give me cash flow every year, but that property will increase in value. And today, that property is part of Sea World in Florida, so he was proven right. He had his own business; he was retired Navy, and so we talked about building assets. And it's interesting because my husband and I we just celebrated 46 years of marriage and our parents. That's actually, yeah. Thank you. We're similar ages. His parents had that scarcity mindset and frugality. You know, his father I think had every penny he ever saw when he passed. He would not spend any money. Now my parents, my father's would you know if he wanted something, he figured out a way to buy it, right? He didn't go into debt except for real estate. He was of the mindset that if I want something, I'm going to figure out a way to get it, and that concept we carried over into rich dad poor dad, and we actually carried that into our business relationship when we first started cash flow, I mean, we needed to buy a printer, and it was $300 or $400 at the time. We said, "Well, how are we going to make extra money? What kind of product are we going to sell to get that money? Because it's a matter of really understanding the power of creation, and if you want something, create a way to get it. Figure it out. Figure out how. When I talk about I can't afford it versus how I can afford it, it's so important for you parents out there to understand.

Sharon Lechter 19:31

When you say to your kids, "We can't afford it, you're continuing a generational impact of scarcity mindset. And so, if your kids ask for something, you say, "Johnny, Mary, how can you afford it? Because I can tell you, kids get very creative about ways to make money. You know, and as long as it's legal, let them do it and let them earn it, reach their goal, buy what they want, celebrate it with them. Because that's not the greatest dividend you have. The greatest dividend from that process is you see their self confidence grow, because they did it on their own. And once a child knows how to make money on their own, there's no stopping them. Financial education is the gift of a lifetime. It doesn't go away once you learn it. And you made the comment about the words arbitration or leverage, people don't understand those words because they've never heard them. They've never heard it, right? Yeah, they've never heard them. They don't know what it means. Leverage. Oh, that's like a rock and a board, right? That's leverage. You know, you have to say, well, if you turn that into money, yeah, that's what it is. That's what we're talking about. That's the problem, and that's when we wrote Rich Dad Poor Dad. I wrote it at the fifth grade level because I did not want it to be intimidating. Because when it comes to money, money and fear are together, and so by the time you understand more about money, all of a sudden that fear is going down, and your self confidence grows.

Keith Weinhold 21:00

Wrote Rich Dad Poor Dad at the fifth grade level. Hey, maybe that's pretty close to the average adult educational level. You know, you probably were on the right track there with that one. But yes, how valuable! If you're a parent and your child wants that Matchbox toy or that Star Wars action figure, don't say we can't afford it. Ask your child, okay, how could we afford this? And sure, they might want to start mowing the lawn or what have you. And yeah, when it comes to living below your means versus expanding your means, I'm thinking about the mindset of instead of moving into a cheaper apartment to save 300 bucks a month, how about trying to acquire a rental property again? How can we afford this that produces an additional $300 in monthly cash flow, and then that asset probably pays you in additional ways as well. You listen to Get Rich Education. We're talking to Pay Your Family Firsts, Sharon Lecter. More when we come back, including Rich Dad Poor Dad in an AI world. I'm your host Keith Weinhold. Let me ask you something: If you've worked hard to build wealth, is your money positioned to actually support your goals?

Keith Weinhold 22:08

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Robert Kiyosaki 23:36

This is our Rich Dad Poor Dad author Robert Kiyosaki. Listen to Get Rich Education with Keith Weinhold. Don't quit your daydream.

Keith Weinhold 23:53

Welcome back to Get Rich Education. I'm your host Keith Weinhold. We're talking with Sharon Lechter, one of the most influential memes in the financial education space, anywhere and ever today, she runs Pay Your Family First, and she's still an active author. We'll learn about that before we're done today. But Sharon, talk to us about what might have changed over time, if anything, and if these sort of rich dad poor dad principles are really holding up in today's world of AI in the modern era.

Sharon Lechter 24:25

Access is the biggest issue. I mean, when we released Rich Dad Poor Dad, and as you said, we're coming up on our 30th anniversary. There was no internet. There was no Amazon. I know that's hard to believe. And so we literally had to get books into stores, and I would wake up in the morning and have faxes from bookstores all over the country, and have to ship out books to bookstores. But we did it because we knew we wanted to get the information out, and so now access to the information is easy-a stroke of a key on your laptop or on your computer or in ChatGPT. You can ask them a financial situation and get all kinds of information. The issue is taking action, so that hasn't changed. You know, taking action back in the early days of rich dad poor dad meant reading the materials, understanding it, attending a seminar, and actually going out and applying it. And today, you still have to take the action. I have something called your personal success equation that I have available. is an ebook that I give away. So you go to personalsuccessequation.com. But it really talks about your passion and your talent. So your passion could you've heard do what you love, love what you do. Well, I actually my passion came from the fact that we weren't teaching our kids about money. So my passion came from anger, and I still that way. When I get mad about something, I start another company.

Sharon Lechter 25:45

But your passion and your talent—I had years as a CPA, years in publishing, and so I could combine that. And that's where most of us stop. We try to do everything on our own. But true success is having that P plus T, and then times A, the power of association. You know, I really value our association, Keith. But do you have people on your team who are strong where you are weak? Do you have the right mentors in today's world? If we compare it to 29 years ago, it's more important than ever to have mentors because speed market is everything. Have someone there that can help you open doors and help you speed away and be there to be counsel for you. And then times a taking action. Again, you know a lot of people have read the book but not done anything. You have to take action. You have to apply it. And then all of it you wrap with a plus F: faith, faith in yourself, faith in what you want to do, faith that you can do it, and faith that you will succeed. And where most of us fail is that F is actually fear, and that fear paralyzes us because fear either paralyzes you or motivates you. And 98% of people are paralyzed by that fear. And so I talk about that, how each element and how you can find your roadblock? What's keeping you back from creating success?

Sharon Lechter 27:05

Power of association. Again, who are you hanging out with? You know, in Cashflow Quadrant, we talked about what quadrant are the people that hang out with you in. But really, think about: Are the people around you supporting you, encouraging you, pushing you, or are they trying to pull you back from doing what you know that you need to do? And that advice is such an incredible issue today, even more so than ever, and because of social media, which was not there 29 years ago. And so that's the difference. Yes, the information is accessible, but you have to take the action to put yourself in the right room, in the right opportunity, in the right environment to find the information you need. Because because it's so accessible, you need to take another step, and you need to make sure that the person you're watching or listening to has earned the right to talk to you. There's so many people that are making lots of money teaching something that they've never done.

Keith Weinhold 28:06

Right?

Sharon Lechter 28:06

And so it's very important to validate the teacher, validate the source, even more so in AI, right? Because AI can make things up. Make sure you're getting the right information to help you make that decision. But above all else, take action because you are the CEO of your life. Nobody else. It's up to you to make the decision and to take that first step.

Keith Weinhold 28:29

I'm hearing a lot there as far as the company you keep elevating your standards, and then there's something about the Dan Sullivan quote in there as well. When you're trying to get a task done, you know sometimes you want to ask who, not how, and understand that that is taking action as well, outsourcing it, and realize you're not going to be the best at absolutely everything out there. Are there anything else that have changed with foundational principles from Rich Dad Poor Dad or Napoleon Hill in today's environment? You touched on AI, of course. More expensive housing is a concern for some people. More persistent inflation, higher government debt than we've ever had. Is there anything else that that's changed, or any principles that you apply to those modern day issues?

Sharon Lechter 29:13

Well, I think it's really so much more important today to do really diligent due diligence. Right, I'm using that word twice because I mean it as it relates to interest rate, the inflation. And back in the you know teens, high inflation was very high, but you could still find a cash flowing deal. And the biggest issue for people today is understanding you want to make sure the numbers work. You got to do the numbers. You got to put your pen to the paper and make sure the real estate deal you want to acquire is going to cash flow in the right direction. Let your tenant pay the debt. You know, with inflation, where we've you know we've just seen rates go up again, been going down now they're up again. We have to take into account what that's going to. Impact on us, and there may be a dip in the value of the property, but if it's still positive cash flow, you'll lose the money only if you sell, because the value of real estate goes down and up, and over time it goes up, and so it's really important to make sure that the underlying asset is still generating a positive cash flow, so that you can continue building wealth from that perspective, and so today it's harder because so many factors have to be assigned to that. As far as inflation, as far as the price of homes, we've seen right now. You know, we've seen that tension between sellers and buyers for the last few years because the interest rate was high and the home values were high, so we had frustrated buyers and we had frustrated sellers. They couldn't find that piece, and so we look at where that margin is coming during that time. If you had complexes, you were you know in like Flint because you could actually increase your rents because the demand was higher, and so understanding the market variations that happen based if this happens, this is going to happen, and creating your real estate portfolio so that you can benefit from those changes. And I think that's even more important today than it was 29 years ago.

Keith Weinhold 31:17

Diligence is the opposite of negligence, and yeah, to your earlier point, Sharon, you know, don't say I can't afford it or I can't get a cash flowing property. Ask how can I, and we've been talking here about how there are a few strategies, something called the Burr strategy, where it's a great time to buy new build property because these builders are motivated to buy down your mortgage rate, often into the fives, to make that property cash flow for you. Answering that question, how can I do it? Well, Sharon, you're so prolific with everything that you're involved in, and despite all these initiatives that you undertake, you are still quite an author. Tell us about the book you're working on now.

Sharon Lechter 31:57

Well, I just in January released my 29th book, and it's called Old Wealth, New Wealth, True Wealth. And as you indicated, after the 15 rich dad books I wrote, I did four books with the Napoleon Hill Foundation. I did a book with Ink Magazine called Exit Rich, which I'm very proud of. And of course, with Napoleon Hill, I released Outwitting the Devil, Thinking Girish for Women, Three Feet from goal, and success is something greater. And then I also wrote a book called "How Money Works for Women, which I'm very proud of. It was with WealthWave, a company that does personal financial support. But it really, we took women from every decade of life and talked about the financial issues they face. It's just wonderful, and it's like a comic book. It's a four-color graphic novel, basically, and we talk about a woman that is in her 30s with two children, and she has to leave an abusive marriage and start over again, or another woman that has a very high-profile career, and she has to change her career because she has a special needs child. Somebody else that has wants to get married, wants to start a business. Another woman that was married 25 years, looking forward to a beautiful retirement, and her husband trades her in for a younger wife, and she hasn't taken the steps to create her own credit, and nothing's in her name, and that happens so often it just breaks my heart. Or you've been married 40 years, and your husband passes away suddenly, and nothing was prepared for it to transfer to you, and so you again you're left with no credit. So these are things that you know through stories we share the power of stories that help people open their eyes to things that could possibly happen to them, and how to find the resources and the support to handle with them, and so then my latest book, Old Wealth, New Wealth, True Wealth.

Sharon Lechter 33:49

After really changing how the world talks about money, you know, my runway is a little shorter ahead of me than it has been behind me, and I realize we have to talk about true wealth. We have so many Type eight personalities out there. We're striving to be a billionaire or multimillionaire, and along the way we lose our family, or we have our third or fourth spouse, right? Or we lose our health because we are working so hard we're not taking care of ourselves, and that's something that I experienced. It's so important for all of us to realize that true wealth is yes, having the financial resources to have the lifestyle you want, but who are you going to share that lifestyle with? Hopefully, my spouse of 46 years, my children who just celebrated 22 years. So where you have the depth of spirituality and love and connection, so your relationships, but also I have a nine-year-old granddaughter, and I want to be around them, and she gets married while I'm 72, so I better do something about taking care of my health, and so all of these aspects I talk about in old wealth, new wealth, true wealth, because old wealth is really the slow and steady. Accumulation of money, right?

Sharon Lechter 35:02

New wealth is understanding alternative investments, understanding, and a lot of that is like this quick, fast new money that people can't keep because they haven't learned the old wealth concepts. But then, true wealth is understanding how to apply that to build generational wealth, and true wealth is generational wealth and having family to leave it to, having the family that's close to you, and being able to have longevity by making sure that you have true wealth in your health as well. I'm very proud of it. I co-authored it with a client of mine who, at the age of 16, he was a nationally ranked cyclist, and everybody anticipated he would be at the Olympics. He was within the top one or two in the country, and he was practicing in New Mexico. Got hit by a car going 60 miles an hour. He actually was pronounced dead on impact. In fact, his mother got the phone call that he died. Luckily, they were able to revive him. But so many people, young and old, that experience something like that, they lose the drive to live and give up.

Sharon Lechter 36:10

But this young man was basically in a coma for a while. Took him a long time to learn to eat and walk. While he was in the hospital, he read Rich Dad Poor Dad, and so he took that same drive and discipline and started investing in real estate. So at age 25, he was a multimillionaire in real estate. And so he reached out to me. Didn't think he actually get to me. He talked to my office, and they said, "You want to talk to this guy? And he wanted to become a spokesperson to help other people in his generation because he sees them seizing opportunities for themselves, really doing the drifting, whatever. And I'm always looking for those younger generation spokespeople that can help encourage and inspire their generation to take the action to create that wealth, and that's why I'm so proud of what you're doing. My husband and I own a ranch here in Arizona called Cherry Creek Lodge, and go to cherrycreeklodge.com. It's out in the middle of the Tonto National Forest. It is a survival property. It's all solar powered. We have our own lake. We raise 500 head of cattle.

Sharon Lechter 37:18

We've got 42,000 acres of grazing rights, and so we have a beautiful retreat center that we built there, and we have business retreats a couple times a year. And he came to one of those, and we started talking about him writing this book, and he asked me if I would co-author it because he wanted my name on it, and I said, of course. When he sent me the first draft, I was like bowled over because it's set as a parable of three brothers: old wealth, new wealth, true wealth, and is set in the exercises and the things that we do at our ranch for our mentoring clients, talking about understanding leverage, understanding assets, understanding. You know, I show a picture of my ranch and the cows are walking along. I go. You see cows. I see assets, right? So getting that concept of cash flow and building multiple streams of income, and so I'm really proud of the book. It's all about the importance of mentorship and understanding buying, building, creating income-producing assets. And I'm known kind of worldwide with my line, assets are sexy, and the older you get, the sexier they become, so.

Keith Weinhold 38:28

Old wealth, new wealth, true wealth from Sharon Lechter. Check that out. Oh, it's been such a pleasure and valuable to have you back on the show.

Sharon Lechter 38:39

Well, it has been an absolute honor, and if they come to my website sharonlechter.com, anything you buy, I will autograph before we send it.

Keith Weinhold 38:53

Oh, so good to talk to Sharon, and on her website sharonlechter.com, there's a section that's prominently shown where you'll see why not take the road less traveled. I happen to know that Sharon has paid one-on-one mentoring there. She takes 15 mentees max. Like we were saying, knowing is not the same as doing. Some people don't take action, and you know, I really first learned this right before I started this show back around 2014 when I still had a day job. My coworkers at the State Department of Transportation, you know, they would often ask me like how I'm taking another vacation that they deemed as lavish. Back then, it seemed like I was always going to Hawaii. I told them that I owned rental properties, and at that time I had rental single-family homes, fourplexes, and apartment buildings. And it wasn't just that these things produced residual income for me, but I could also take a. Cash out refi on a property totally tax-free, and spend that money on a vacation to Hawaii or as a down payment on another rental property. And you know, as fascinated as those former coworkers seemed to be, virtually nobody took action. Now, maybe part of that, just a small part, is because they had a pension, not a 401k. So a lot of those state DOT workers just felt like it was worthwhile to allocate 30 years of their lives there. They were not willing to take the path less traveled, and shortcut that down to five or 10 years in real estate. I told you before that it took me 12 years because it took me a few years to really devote myself to it. But yes, you've got to act. To Warren Buffett's point, I have still never met a billionaire economist. Big thanks to the terrific educator and motivator Sharon Lechter today. Until next week, I'm your host Keith Weinhold. Don't quit your daydream.

Unknown Speaker 41:16

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

Keith Weinhold 41:44

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

Keith asks why so many people end up competing in the "Grind Olympics" of the traditional day job, and explains why separating income from time is key to building real wealth.

He then counts down the top five ways to give a rental property a raise by increasing its net operating income, and points to the lever investors most often overlook.

Keith also looks at what has happened to home prices during every major stock market crash since 1980, and shows why negotiating better financing terms can beat simply getting a lower purchase price.

He offers practical strategies for building cash flow, creating value and investing with more confidence in any market.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. Does your day job have you competing in the Grind Olympics? It's something that you never signed up for, and the top five ways to increase your rental property's income. Then, when stocks crash, what happens to real estate? You'll see historically today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. In September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Homebuyers, the largest turnkey company in Memphis with more than 6000 homes under management, for a free live webinar the likes of which I've never done before. We're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth again. that september 30. Don't say we didn't tell you. Save your spot at getricheducation.com/midsouth.

Speaker 1 1:34

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 1:50

Welcome to GRE from Wheeling, West Virginia, to Whiting, Indiana, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich Education. Before I get into basically giving your rental property a raise with the top five ways to increase its income, first let's get the context of pulling back and understanding your compelling why for all of this. You may or may not like investment property itself-it's more likely rather that you love what it does for you. That's how it is for me. What do most people do? It's like they're training for the Grind Olympics. Are you doing this too? But you don't remember signing up? I mean, that's kind of what the day job is, society's vortex gradually pulls you into it. The investment property is what gradually tilts you out of it, or it gives you that option. For so many, the day job, it's sort of like this competition that really no one officially announces it yet. Millions enter it. Who can work the longest hours? Who can answer the most emails? Who can miss the most family dinners? Who can delay their life the longest? And at the end of it all, something we call retirement. If you're a winner, not a loser. The winner, you receive a gold-colored watch, lukewarm sheet cake, and a little party at age 65, and that's assuming that the finish line hasn't been moved to 70.

Keith Weinhold 3:40

This is especially bad and prevalent in the United States, where you start out with just two weeks vacation. That's about the worst grind in the developed world. I really myself started questioning this lifestyle when I was a teenager, and this is because my older friends, sort of those that were getting into their late teens, they were relatable to me, and they started going down this path and telling me about it. And suddenly, they couldn't play baseball or tennis with me during the day because they started working during their summers. Now that's not so bad in itself, but stay with me. I also looked at the adults around me and noticed that most traded the majority of their waking hours for work that they didn't even like. Now, my dad was a good worker. He worked 7 a.m. to 3 p.m. faithfully Monday to Friday, and despite being a good worker, he certainly didn't love his job. As a teen, then I found it confounding that so many people were working Monday through Friday, primarily why, primarily to reach the weekend. Wednesday was celebrated as. Day, this sort of strange admission that the work week was something to climb over and survive. You're surrendering 50 weeks to earn two weeks of vacation. You're repeating that very bargain for 40 years and hoping you still have enough money, energy, and health to enjoy retirement. And what puzzled me most was where this was happening. We are not some impoverished nation with paltry resources and limited opportunity. This is the United States, the most powerful and perhaps the most prosperous nation in the world.

Keith Weinhold 5:40

This is the part that I still can't work out in my head. Almost everybody falls into a narrow, rigid groove and grinds. Eventually, the groove becomes a rut. Then the rut gets a job title and a dental plan. Many even form their identity around this. Fear is the number one motivator that gets employees to show up at work. So then, do most people lead fear-based lives? It's almost insane. Sheesh! We have skyscrapers, interstate highways, world-class universities, abundant natural resources, advantageous geography, rule of law. We've got vast capital markets. We've got technology that sent people to the moon before I was born. Endless possibilities, but yet the standard life plan is to spend our most vivacious years doing something that we didn't even want to do. What a paradox! How could a nation create so much wealth while so many people have such little control over their own time? Even then, as a teenager, I remember thinking, "Gosh, there has got to be a better way than this system somehow. I didn't yet know the way, so I started going to college at age 18.

Keith Weinhold 7:16

But this path put me on that same trajectory of get good grades, land a job, max up my 401k, which would reduce my salary, and work for four decades, and then cross my fingers and just somehow hope that promotions, inflation, taxes, a stock market that I couldn't control, and life itself would cooperate. I mean, that plan could kind of work, but your time is still doing most of the work. Your employer rents your time usually one hour at a time, and if you stop supplying the hours, then soon enough your income stops too. Capital compound. labor doesn't. The better path is to gradually separate your income from your time. That's what I began doing when, while I was working full time, I bought my first income-producing rental property a few years later, a few years after college, in fact, doing that on the side, divergent, black sheep. I was stepping out of the groove. Now I own an asset that created leverage and income, whether I'm working, sleeping, camping, climbing a mountain, or spending time with my family. So the goal then it's not to avoid hard work entirely. I mean, meaningful work that can even provide some purpose and achievement and pride. But what provides wealth? What are you going to do for that? Wealth is what happens when you're not working. Wealth is what happens when you're sleeping. Labor produces income. Assets create wealth. Grinding should be a season, even your contribution to society, but not your primarily financial strategy. So the bottom line is that we don't want to win the grind Olympics, income-producing assets help us build a life that we don't have to postpone. The entire conventional life plan, the whole thing, just never felt right to me. Intuitively and rationally, deep down, you know, think to yourself: Doesn't at least some part of you feel that way too? Thank God that I found real estate. I don't love it. I love what it does for me. You've got to love what it does for you.

Keith Weinhold 9:54

One attribute that your income property gives you is control. So. With that in mind, I put together the top five ways to increase your rental property income countdown style from number five to number one. Since you do own an asset that you can control, so we're talking about giving your rental property a raise here, and you know your property does not even need to appreciate in order for you to make it more valuable, your property doesn't need to sit around waiting for the market to appreciate like it's waiting for a promotion from corporate or something, which always takes too long. You can manufacture more income yourself. So net operating income or NOI, it only has two moving parts. It is property income minus operating expenses. Push income up or pull expenses down, and you've effectively given yourself a raise. Better yet, on an income-valued property like a five-plus unit apartment building, every additional dollar of NOI can create far more than $1 of property value. So here are the top five ways to increase your property's income.

Keith Weinhold 11:10

The fifth best way is to add ancillary income, because monthly rent it's not the only asset inside your property. Now, depending on what property type you have and what the local laws are, you can charge for pets, parking, storage, laundry, furnishings. You can charge for internet packages, utility reimbursement, reserved garages, upgraded amenities, or you can even charge in some cases for application, administrative, or lease break fees. The best ancillary income it provides something that the resident genuinely values. We're here to serve and give value to others. Importantly, it should feel like an option for your tenant with these things, not some toll booth placed between the tenant and their front door. We know how annoying it is to have a tip screen swung around and placed in your face. Even an additional 25 or $50 per unit each month that can become meaningful across several properties. The fourth best way is to cut your controllable operating expenses, and you know what most investors do, and it is easy to fall into this, and I certainly have too at times. You know, most investors they carefully negotiate the property's purchase price at the beginning, and then they spend years casually accepting every recurring bill, audit your expenses rather than just accepting last year's cost plus inflation.

Keith Weinhold 12:49

So closely look at your property management fees, landscaping and snow removal, pest control, cleaning, trash service, water consumption, and any leaks that you might have. Common area electricity, repair labor and material markups, service contracts, and preventive maintenance. Gosh, I really lost a lot of money in pest control one time when the pest would just move from one apartment unit to the other, and we just couldn't get it trapped or stopped. Loyalty is admirable in marriage. It is less compelling when your landscaping company raises its price 14% every year. So solicit competing bids, consolidate your vendors where you can, install efficient fixtures where the payback period makes sense and where the break-even math works. But now, don't confuse expense reduction with maintenance neglect.

Keith Weinhold 13:53

That is one danger. So you know, if you delay a $300 repair until it becomes a $3,000 emergency, well, that really doesn't increase your NOI. It merely makes this month's numbers lie. Now, as I tell you about this list, you might think sometimes, "Oh, I've heard of that one before. Okay, but yeah, are you actually doing it? The third best way to increase your property's income is to challenge taxes and shop insurance because property taxes and insurance they are really among your property's largest operating expenses. So therefore, if you get good at this, you can both increase your net income and you will have gained a new skill that you can apply later and elsewhere. Yet you know a lot of owners they treat property tax and insurance sort of like the weather. They complain about them and then they just assume that nothing can be done. Possible moves that you can make are appealing in excessive property tax assessment, correct inaccurate property records. You can compare insurance carriers as often as annually. Adjust your deductibles when it's appropriate. Be sure you remove redundant coverage. Make sure that there's no overlap there. You can add safety or resilience improvements that qualify for insurance discounts, and then at the same time, sometimes that improves your property's value. You can check the property's classification and claims history for any errors there. So you know every legitimate dollar saved that flows directly into your NOI, your net operating income. Remember, mortgage payments though they do not factor into NOI. Neither do major capital expenditures. Refinancing can improve your cash flow, but that does not increase the property's NOI, and that's what we're talking about today. But when it comes to property tax appeals, you remember a while back on the show, perhaps a year ago, I went into detail on just how you can do that.

Keith Weinhold 16:00

Now we're up to number two. The second best way to increase your NOI is to raise rents intelligently, and really this is the most obvious strategy. But it isn't as simple as typing a larger number into your renewal letter and then just sort of hoping that your tenant doesn't notice. Bring rents closer to market without automatically chasing the absolute maximum. That can include gradual increases at renewal, premiums for upgraded units. How about a premium for the unit with the best view? If you have one of those, higher rent for furnished units, appropriate charges for garages or shorter lease terms. I mean, shorter lease terms, like a six month instead of a 12 month, that can get you a bump up in the rent. Be sure to eliminate any unnecessary concessions, like the first month's rent is free. Do you really have to continue to do that? And use better listing photos and copy to support higher rents. It's easy to have AI write some good snappy copy for you today. So the objective here is economic occupancy, not merely the highest advertised rent, because raising the rent $100, if that's going to create an extra month of vacancy that is stepping over dollars to pick up dimes. Know the market, understand the tenant, and make increases that improve NOI rather than merely improving the asking price for the REM. And the top way, the number one way to increase NOI is reduce vacancy and turnover. Yes, you might have heard that before, but it is still the most overlooked NOI lever, even though it's number one. An occupied unit at a sensible rent that often produces more income than an overpriced empty one.

Keith Weinhold 17:58

The way to improve your occupancy is by you starting renewal conversations 60 to 90 days before that lease comes due. Respond quickly to maintenance requests. I mean, few things frustrate a tenant more than a ceiling that is leaked for a month. Pre-market an upcoming vacancy that you have. Start that process early. Complete your turns faster, screen residents carefully, and unless you're in an especially hot market, consider offering renewal incentives when turnover would cost you substantially more than doing that. So there are a bunch of ideas for reducing vacancy and turnover. Another one, more of a modern-day one, is for you to buy and operate new build property because tenants tend to stay in new builds longer. They love that feeling that no one has ever lived there before. Suppose a unit rents for $1,800 a month. All right. Well, then one vacant month costs you $1,800 before cleaning, repairs, utilities, advertising, and leasing expenses. So the true cost of that turnover could easily be three or $4,000. And when you consider that, then giving a good resident a $250 one time renewal incentive that doesn't look generous that looks profitable for you. Keeping a responsible tenant, you know that might be the biggest quote unquote rent increase available. Just simply keeping a responsible tenant because occupied properties produce income, and empty properties produce invoices.

Keith Weinhold 19:48

Now that I've told you about the five ways to increase your property's income, let me give you some more motivation for this. It's about how $250 can become 50. $1,000. Suppose you select just a few of these five improvements, and say that that increases your NOI by just $250 per month. Okay, that's nice. That's cash in your pocket, and if you happen to apply it to a five-plus unit apartment building, since it's also valued on NOI. You take 250 bucks times 12. That is $3,000 a year at a 6% capitalization rate. Take 3000 divided by point 06. That is $50,000. You just created 50k of additional property value from only $250 of monthly NOI creation. Yeah, you are up 50k now, and here's the thing: you did not do anything that substantial. It's not like you added another story to a property, or you discovered oil underneath your parking lot, or you convinced a celebrity to move in. Okay, these are practical things that you can do in control. You simply operated the property better, and this forced appreciation relationship that applies most directly, though, to commercial and larger multifamily properties because those are the types that are valued based upon their income. A single-family rental or a duplex or a fourplex that is generally appraised primarily through comparable sales. So its higher NOI might not immediately produce the same increase in appraised value, but in either case, higher NOI it still means more cash flow for you, a stronger financial cushion, and a better performing investment. The bottom line here is that you can wait for the market to increase your property's value, or you can operate the property better and create value yourself, raise income, control expenses, and keep good residents. That is how you improve NOI without increasing your blood pressure.

Keith Weinhold 22:10

Coming up on the next few shows, we're going to speak with the original co-author of the book Rich Dad Poor Dad. Yes, we had Robert Kiyosaki on here earlier this year, but we're going to talk with the co-author alongside Robert Kiyosaki. A lot of people don't know who that is. That is going to be interesting on another upcoming episode. The man that wrote the book on the 8020 rule called the Pareto principle, he will be here. That's where 80% of the results come from. 20% of the effort. So here on GRE, there's a lot of education, strategy, and mindset coming up straight ahead today. When stocks crash, what happens to real estate? That's next. I'm Keith Weinhold. You're listening to Get Rich Education. Let me ask you something: If you've worked hard to build wealth, is your money positioned to actually support your goals. A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. In full disclosure, I'm an investor myself.

Keith Weinhold 23:27

What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts-they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call, or text family to 66866. That's family to 66866. What if you got your mortgage loans the same place I get mine. You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your prequal and even chat directly with President Caeli Ridge while it's on your mind. Start at ridgelendinggroup.com. That's ridgelendinggroup.com.

Kirsten Tate 24:31

This is author Kristen Tate. Listen to Get Rich Education with Keith Weinhold, and don't quit your daydream.

Keith Weinhold 24:49

Welcome back to Get Rich Education. I'm your host Keith Weinhold, and this is episode 625. AI songs are becoming more popular. Fortunately. AI podcast hosts-they really aren't that much of a thing yet, or else I might not be here. Thank goodness that listeners still want to hear from a real person. When stocks crash, what happens to home prices? Since 1980, there have been 10 or more major stock downturns. Guess how many of those cause national home prices to crash? Exactly zero. Now there was one pretty enormous housing decline, but that one started in housing. And what happens next? It reveals something that every real estate investor should understand a lot like real estate right now. Stocks are hovering near their all-time highs. Okay, both major assets, real estate and stocks, bumping up against all-time highs. There is a predictable rhythm about what happens to real estate when stocks crash. Now, when we look at stocks' seven big downturns that occurred just this century, as measured by the S&P 500, you know, first a lot of people think that stocks are overvalued here in the late 2020s. That is based on measures like the historic P/E ratio, the Shiller cape ratio, and the Buffett indicator. I mean, some investors are just disillusioned by how stocks' movement makes so little sense anymore. For example, when the latest labor number showed that 162,000 jobs were added in a month. That tripled expectations. I mean, people should have been like, "Hey, go USA! This is great. People are employed. All that. Nope. The stock market fell specifically in response to that. Why? Because strong employment increases the chances of higher interest rates, and sure enough, the Fed did then raise rates.

Keith Weinhold 27:09

Oh, geez, what? So a labor market collapse is then bad for America, and that's good for stocks. Yes, that is how it works. That is just stupid. So, with that context in mind, let's see what actually happened to national home prices this century during all the major stock market downturns that were not caused by housing, and then we'll get back to housings. Okay, during the dot-com bust in 9/11, that whole period about 25 years ago, stocks again. This is all per the S and p5 100 crashed 49% Home prices were up 23% during that time. We'll get back to the global financial crisis shortly. During the 2011 debt ceiling crisis, do you even remember that stocks went down 19 percent. Home prices went down just slightly, 1 percent. During the 2018 Fed tightening and trade war sell-off, stocks were down 20 percent, a classic bear market. Home prices were up 1 percent. Then came COVID. In barely a month, stocks plunged a jaw-dropping 34% This was in 2020. It was like a flash crash. What happened to home prices then? They were up 1% just a little. So, are you beginning to see a pattern, or perhaps a lack of one here during 2022's inflation peak and Fed tightening bear market stocks fell 25 percent. Home prices they were up 4% during that time period, and then during the 2025 tariff sell-off, you might remember Trump called that Liberation Day. Stocks were down 19 percent. Home prices. were essentially unchanged.

Keith Weinhold 29:06

All right, so there they were: six major stock market downturns this century, not one housing crash. All right, now let's turn the telescope around because 2008 was different since the crash was real estate induced, and it is the only time in the life of you or I or anyone alive today, even a 90-year-old, where national home prices took a significant fall. In fact, they were down 27 percent, and it took them a few years to fall that much. All right. Well, what did stocks do during this period? They fell even more, down 57% more than twice as much, 57% I mean, just imagine having a million-dollar stock portfolio and seeing its value cave in, down to 430k from a million. Okay, that's what really happened march 6, 2009, when the S and P hit its global financial crisis low, and that happened over a 17 month stock collapse. Okay, so what's really the summary? It is that in the six times that stocks led a price crash this century. Real estate held up, or it rose, and the one time real estate led the crash, stocks fell more than twice as much.

Keith Weinhold 30:31

It was 27 %versus 57%. All right. Well, that is what's happened this century. But you know this cause and effect relationship or lack thereof, that didn't just begin happening in 2000. When we stretch the history back to 1980, which is Jimmy Carter, almost Ronald Reagan era days, stocks had four more big downturns. We had the Volcker Bear Market, the famous 1987 Black Monday stock market crash, the Gulf War sell-off, and the LTCM crisis. During those four stock crashes, home prices also either stayed resilient or they rose. All right. Well, all of this is because homes and stocks, you know, they just aren't connected by some push and pull relationship. Stocks reprice in seconds. Fear spreads. Algorithms sell, and billions of dollars can disappear before lunch. Instead, housing moves more like a cargo ship that you're trying to turn around in the Mississippi River, it can take a long time. Housing transactions take months. Prices depend on local supply and local incomes, and mortgage availability, and whether homeowners are actually forced to sell. Housing provides something that every human actually needs and cannot be easily disrupted by AI. I mean, AI still cannot download a three-bedroom house onto a vacant lot. And of course, during any stock crash, what else happens with real estate? Your rent just keeps coming in as well. So the bottom line here is we're learning from history rather than having a hunch again. Home prices don't react to stock market crashes. Stock crashes and housing downturns are different events.

Keith Weinhold 32:32

A falling stock market it can eventually weaken consumer confidence. In in a severe recession, some of that can trickle in and affect housing, but history shows that a stock crash alone has not caused national home prices to fall. When stocks scream, real estate just kind of shrugs. Now, as we get back to talking about today, with real estate being cash flow challenged, you usually need a deal in order to make the numbers work. And as we know, for more than two years now, it has been wise to buy new build property and have that home builder buy down your mortgage rate rather than getting a property price discount. And do you realize that it actually works out better for you in almost every case for you to get your rate bought down than it is to get a discount. Yeah, it is often substantially better. Let's just think about an example. Say you're putting a 20% down payment on a 300k property at a seven and a half percent mortgage rate. Okay, let's compare your seller discounting the purchase price by 20k versus them instead using 20k to buy down your mortgage rate. All right, in the first scenario, let's call it then a purchase price reduction. The seller reduces it from 300k down to 280k. Your monthly payment would be 1566 $1,566. All right. Well, then your monthly savings from the price discount would be $112. You would also need 4k less for the down payment. Okay, 112 bucks a month is helpful to you.

Keith Weinhold 34:18

That might buy you dinner for two at the Olive Garden or something, at a wildly overpriced airport convenience store. By the way, this is a bottle of water and one almond, 112 bucks. Okay, but now let's compare it with the second option. If instead of a price discount, you pay the full 300k and use the 20k as a seller credit, a credit from the seller, and you use that to permanently buy the mortgage rate from seven and a half down to five and a half percent. In this case, even though it's a larger amount financed, your monthly payment is no longer 1566. It's just 1363, so your monthly savings is no longer 112 bucks. That Olive Garden dinner for two, it is 315 bucks. So therefore, using the seller credit instead of reducing the purchase price that ups your monthly cash flow by about 203 bucks. All right, and this was just an illustration. It's not a universal lender rate sheet carved into a stone tablet. But the larger lesson remains. Okay, terms are often more important than price. Negotiate the financing. That is the lesson. And of course, you can try to use this most anywhere with any seller, but it's been especially popular with American home builders for two plus years now.

Keith Weinhold 35:47

The bottom line is that the best deal isn't always the property with the lowest price; it is the one with the best financing, and it's one of the strategies that Mid South Homebuyers is going to offer on Wednesday night's webinar just two days away, and there's no negotiation needed. They are offering this, and it's where I'm going to be appearing live, and you're invited to join us from the comfort of your home or a coffee shop or wherever you are. So we're talking about properties in Memphis, Little Rock, and North Texas. New build properties for as little as about 200k, and some fully renovated resale properties for as little as 150k, and even less than that. Now, low price isn't reason enough to own an income property, but it's the fact that you get a strong rent in a stable market to support that, and they're offering what they call their triple five terms. They'll buy your mortgage rate down into the fives and provide property management for just a 5% fee for five years. And I just learned that for attendees of Wednesday night's event, they will even announce a promo code there, and you will get triple five terms for life on both financed and cash deals.

Keith Weinhold 37:12

And you know, I've got to say that when I began in real estate investing, I wish that any of this would have existed. Like when I began, I wish there even would have been new build property available. They just didn't even have that for income property when I started out. And the fact that it's managed for you from day one, I didn't know about that when I started out. I thought I had to invest only in my home market and then manage it myself. And here you get investor advantaged geographic markets, and then if that's not enough, you get that rate buy down into the fives and property management costs. It's basically cut in half to help improve your property's cash flow, and you can almost think of this as lifetime cash flow. You get to control a sustainable business model that's resistant to AI disruption, and yeah, it's sustainable. I mean, people will pay you to live there. That has happened for centuries. It's sort of the opposite of a cryptocurrency that will not exist in two years. It happens Wednesday night. You'll get to see me live along with the renowned providers from Mid South Homebuyers and their properties and their generous incentives and all the new AI investment that's acting as a tailwind coming into Memphis. Registration is free at getricheducation.com/midsouth. It's 8p.m. Eastern on Wednesday night. I'll see you there, getricheduceducation.com/midsouth. Until next week, I'm your host Keith Weinhold. Don't quit your daydream.

Speaker 2 38:57

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.

Keith Weinhold 39:25

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

Keith examines why renters made up nearly 80% of U.S. net household growth last year, and how housing supply explains the gap between rents falling 8% in Austin and rising 17% in San Francisco and Chicago.

Terry Kerr and Matthew Van Horn of Mid South Homebuyers join to discuss new-build rentals under $200K in Memphis, Little Rock, and North Texas, in-house property management, duplex deals, and financing incentives with rates bought down into the fives.

The episode closes on the AI buildout reshaping Memphis, where xAI's Colossus, Anthropic, and Google are driving billions in investment and a share of the new tax revenue back into surrounding neighborhoods.

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Join Mid South Home Buyers' one-time, free live webinar featuring Keith Weinhold on September 30 at GetRichEducation.com/MidSouth to learn how Memphis' economic expansion could create new real estate investment opportunities, and have your questions answered in real time.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. U.S. rent growth is led by cities with AI investment and those with a lack of new housing supply. Then we're talking about new build properties for under 200k that cash flow and with mortgage rates that are bought down into the fives today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. In September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Homebuyers, the largest turnkey company in Memphis with more than 6000 homes under management, for a free live webinar the likes of which I've never done before. We're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth again, that september 30. Don't say we didn't tell you. Save your spot at getricheducation.com/mid south.

Speaker 1 1:33

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 1:49

Welcome to GRE from Davenport, Iowa, to Smethport, Pennsylvania, and across 188 nations worldwide. I'm Keith Weinhold. You're listening to Get Rich Education. Hey, near the end of today's episode, I'll announce where I'll be appearing live and inviting you to join me. But first, most real estate headlines that you see out there for quite a while now, they tend to focus on just how difficult buying a home has become amidst higher prices and mortgage rates-it's kind of an old story by now. But for investors, the other side of that story is what matters. When fewer people can buy homes, well, more people have to continue renting them. Only 6 million of America's 50 million renters can afford to buy the median home. In fact, so that means then that only 12 percent of America's renter households can afford the median home. That is just remarkable, and that's exactly why they have to keep renting, but you know what's more remarkable is the growth of this group of people itself. Last year, the U.S. added an estimated 898,000 renter households, but only 234,000 homeowner households. That's per the Census Bureau. All right. So then, renters accounted for nearly 80% of the nation's net household growth. Gosh, that is staggering. Well, let's look at the rent change and their factors in some of America's largest cities over the past three years, in Austin rents down 8% over the past three years, lowest anywhere. San Antonio minus 4% Denver minus 1% and then you got a couple cities, Phoenix and Dallas that are even no rent change the past three years because they've had some overbuilding. Raleigh, North Carolina, up 1% Nashville, Orlando, and Houston all with rents up 2% over the last three years. Still pretty modest. Jacksonville, Tampa, and Charlotte each up 3% Atlanta up 4% Miami also up 4% Los Angeles and Memphis both up 6% Seattle has had rent growth of 8% the past three years. Boston really with a lot of growth in tech jobs and not much new supply added. So Boston, Massachusetts, 10% rent growth. Philadelphia, 11% rent growth. New York City, famously not adding much supply. Rents are up 14% since 2023. San Francisco and Chicago leading the charge rents up 17% in both San Francisco and Chicago over the past three years. Now the biggest reason for the variability in rent change since this time it's largely the same reason for capital price change, for appreciation level, and that is the factor of supply. You know, remarkably, the eight cities that have built the least, they have the eight highest rent growth stories, and most of those are higher cost coastal markets that have high building regulation. I mean, sheesh. That's where approving new housing can take longer than choosing a speaker of the house, and that's how already expensive markets remained resilient.

Keith Weinhold 5:57

Namely, I'm talking about places like New York, Boston, Chicago, and San Francisco, and then you've got these pandemic-era magnets like Austin, Phoenix, Dallas, and Nashville. What these places did is they attracted residents and developers along with them, but yet they've all got really slow rent growth stories, like I just outlined. So what really happened here in these pandemic-era magnet places, again, Austin, Phoenix, Dallas, and Nashville, is that builders showed up like food trucks at a music carnival, and eventually the construction wave caught up with demand. Then you know we got to look at the Sun Belt. A lot of people talk about the Sun Belt like it's just one market or one place, and of course that's not true because I just told you about how Atlanta and Miami rents rose 4% the past three years. Well, a number of other places in the Sun Belt just stayed about even, but it's really the tech hubs like Boston and San Francisco, that are just surging, really soaring with rent growth amidst the AI boom, because they've really been the beneficiaries of that. So yes, apparently even the people building our robot replacements then need a place to live. The robots themselves don't pay rent yet. It's rarely been more apparent that real estate is local when there's this 25% Grand Canyon between Chicago and San Francisco's 17% rent growth, and then Austin's 8% loss. And again, I'm talking about that period just over the past three years. Now rent declines-that's something that really doesn't happen very often.

Keith Weinhold 7:48

They tend to be even more rare than a loss in overall home prices. But you know, rent declines-they can create buying opportunities. What happens is that softer rents-they pressure your current cash flows for sure, and that hurts, no doubt about it. But over the longer term, what that does is that discourages new construction, and then that sets the stage for tighter supply down the road. So that is really the rent growth story the past few years in the United States. We're going to discuss rents and prices some more, and then the excitement of the profound amount of new AI investment into a place where you might not be thinking about it in, and that is Memphis. Listen to what SpaceX, Anthropic, and Google are all in the process of doing there, and what that could do to rents. We'll talk to the premier provider of Memphis rental property, and they also place your tenant and they manage it for you, so that all you do is little more than collect the monthly rent check, and they also offer this in Little Rock, Arkansas, and more recently in North Texas, founded in 2002, Mid South Homebuyers they are one of America's original turnkey real estate providers, and you know they're quite possibly the oldest major provider that still operates today. We're going to talk to the man that actually sets the rents there, and in fact, Mid South is so renowned and respected that for a long time, if you wanted to own rental property from them, there was a waiting list that once reached 24 months, and frankly, in that scenario, investors would just kind of settle for the first property that became available-that doesn't happen anymore. There is no waiting list, and you actually have a choice now. Let's talk to this week's guests. Back on the show today, the Memphis-based team that has provided more. More income property to GRE listeners than anyone in history. They were first on the show with us almost 12 years ago on episode nine. It is Mid South Homebuyers founder Terry Kerr and director Matthew Vanhorn. It's a warm welcome back to the show.

Terry Kerr 10:18

Thank you so much, Keith. Always love being on your show, man.

Matthew Vanhorn 10:22

Yeah, so glad to be back, Keith.

Keith Weinhold 10:24

You know, I was talking with you earlier, and you had brought up something that struck me as interesting, and yet it could be true that when it comes to cash flow in real estate, we are living in the good old days. Now, nationally, cash flow has been challenged because purchase prices and mortgage rates are both up, and rents haven't quite kept up proportionally. But there, in the markets that you deal in, you can still get it with a small down payment because you do have a high ratio of rents in proportion to a low purchase price. Some of them still under 200k for a good rental single-family home, and incentives that get your mortgage rate into the fives. So tell us more about how we could be living in the good old days now.

Terry Kerr 11:09

Well, you know we're very fortunate to be working in some towns where the price to rent ratios are still super favorable comparatively. You know you mentioned that you can get into a house for under 200,000, we even have new construction houses that folks can get into for under 200,000. Yes, one of the other ways that we're able to make the deals pencil out and make it to where these are definitely the good old days is through a promotion that we've had going on for a bit called the Triple Five, where we buy the rate down into the fives and have a 5% management for five years. So these are definitely the good old days here at Mid South.

Matthew Vanhorn 11:51

One thing that you preach on your show, Keith, is about looking at history over hunches. Right, and when I look at the history, everyone. who comes to me now says, "Man, I wish I had bought 10 years ago. I've yet to hear anyone say, "Man, I wish I'd bought less 10 years ago. Never happens, you know. And 10 years ago, well, 10 years ago was 2016, and a lot of people say, "I wish I had bought more then, and the reality is, a lot of people were scared to buy then. You know, their times were uncertain then. We were unsure where things were headed then. Always, and maybe people looked at our prices back then as they started to hit $75,000 for a home, and thought, man, things are getting expensive. But my belief is truly, Keith, that 10 years from now, people will look back and say, man, I wish I had bought more 10 years ago. I mean, we're living at an incredible inflection point. I believe in history, you know, where we know that the world is changing with AI and with various factors that are happening. We're on very much the cutting edge of all of that. You know, I don't have a crystal ball, but I just believe that 10 years from now, people will say, "Man, you guys were so lucky to be able to invest in a time when AI was in its infancy, and like before prices had skyrocketed, like they are now in 2036. That's just my belief, Keith. Looking at history over hunches, there,

Keith Weinhold 13:31

I very well believe that could be true. The truth is, for you as an investor, when you buy a property, it's pretty likely you've paid more for that property than anyone has in history, and it's also pretty likely that when you sell that property down the road, you are going to sell it for more than anyone ever has in history. People always think that times are uncertain, and they're going to continue to feel that way because nobody can know the future, of course. And Terry, you talked about your incentives with the triple five. That's for someone that makes a small down payment where they can get their mortgage rate bought down into the fives. They get five years of property management at 5% and we're big fans of leverage here. However, if someone wants to pay all cash, you also have an incentive known as the Forever Five. Tell us about that.

Terry Kerr 14:26

Yeah, so the Forever Five for somebody who pays cash, they will get 5% property management forever because they are not getting the benefit of the interest rate buydown. So we want to treat our cash buyers fairly as well, and that's been very popular.

Keith Weinhold 14:43

And if you, as a cash buyer, participate in the Forever Five, and then you go on to refinance the property, maybe to pull cash out after you've closed, you still get those incentives for the duration of your ownership of the property.

Terry Kerr 14:56

Absolutely.

Keith Weinhold 14:58

Now, Matthew, interestingly. You talked about an inflection point. We'll get into that later. There is a clear inflection point with Memphis and with AI. But before we do that, why don't you talk about your core business and some of the markets that you serve and what the drivers are there?

Matthew Vanhorn 15:18

Yeah. Right now, when you invest in Memphis, you are investing in stability. We still have great cash-flowing assets in Memphis for as low as $100,000. We have great cash-flowing assets in Little Rock for as low as $120,000, and even Texas, we have assets there for as low as 215,000, which I don't expect you to see those kind of prices in the future. I think we're at a very lucky point where you can get into Texas for as low as 215. We're still seeing strong cash flow in our markets, especially with our triple five promotion. I mean, we've looked and listen. We realize it's harder to find cash flow than it used to be. That is true, and that is why we've rolled out this triple five promotion, where it really helps these deals pencil for our investors. It gives you five years of reduced property management. It gives you 30 years of a fantastic fixed rate on your interest, and my belief is that your rents will continue to grow faster than your expenses. So that five years from now, even if there is a property management adjustment in year six, which that would adjust to the normal rate of 10% or for investors who have more than six homes with us to 8% I believe that you're going to be in a much better place six years down the road because of the factors we know that rents increase, your resident pays down the mortgage, and I believe that this happens at a rate that's faster than your expenses grow.

Keith Weinhold 17:02

Talk to us about what you're doing as far as new build versus resale properties, because so many providers today are finding that they're doing more volume of new build than they are of resale properties, and this is really a good, important, fundamental thing that people like you are doing because amidst the national housing shortage, there's an even greater shortage of those entry-level properties. So now that you've been doing new build for a little while, tell us about that and what kind of effects that makes. How good that is for the investor. How much longer tenants are being retained for a longer duration in the new build property versus resale, and just more about that new build versus resale.

Terry Kerr 17:46

Sure, man. So we got into doing new construction, you know, out of necessity, and also because our investors were asking for it, our renters were asking for it, and so also we couldn't find as many rehabs, and you can't force a good deal to come onto the market to find for rehab. And so we went on a absolute tear for dirt. So within the last 12 months, we picked up over 400 vacant lots, and so we kind of have the dirt stacked up for the next while, and we're doing that in both Little Rock and in Memphis. And so, what we've seen on the leasing and on the acquisitions for our investor side is that our residents absolutely love it. We could ask more in rent than we're getting for these new construction properties, but we're tempering ourselves because we know that what makes a property cash flow for the long term is lease renewals for the residents. So in Memphis, as an example, our average rent for a brand new three-bedroom, two-bath, 1400 square foot house is 1450. And Matthew, what's the price point on that? Is it like 198,000 bucks? Is that it? That's right. And so they're just flying off the shelves from a rental standpoint. And like I said, we could get more in rent and still sell them at that 198 or maybe more. But we're wanting to make sure that we're leaving enough meat on the bone all the way around the horn, and to your question, Keith, about additional length of resident stay, we haven't been doing new construction long enough to really have good data points on that. But if the interest in the new construction product by our residents is an indicator of length of resident stay, it's going to be longer than our rehabs.

Matthew Vanhorn 19:42

Yeah, and another thing that I think that's interesting is that we are often building these new construction homes in the same neighborhoods where we have done our newly renovated homes, and so that continues to bring up the value of our renovated properties. Which I think is a beautiful thing that not all investors have connected the dots on yet with what we're doing in these neighborhoods. I think it's a beautiful thing because some residents are going to prefer that four-two new construction, like Terry mentioned, and other residents are going to prefer to pay a little bit less and get that three-one ranch-style home that we love so much here at Mid South,

Keith Weinhold 20:24

and you, the listener, you might be wondering about really properties, including new build income properties for under 200k. But I can attest to you that I have walked inside these properties myself with Mid South home buyers, several of them, so we're not just talking about the glossy brochure version of how a property looks. This is real with the low purchase prices in Memphis due to them being the transportation hub of the nation and an awful lot of other reasons. But the whole thing that makes this stick together for you, the investor is the property management, and you you never hear anyone rave about their property manager, seemingly. But with your management and making this hands-free for the investor, I have got to say I don't think I have ever heard one complaint about you guys's property management. So tell us about that. When someone gets sort of enamored with owning in one of your markets, Memphis, Little Rock, or with what you're doing in Texas, tell us about that handoff to the property manager and how important it is to have that in-house management. Because if there ends up being some construction or rehab problem, you know the manager isn't pointing fingers at somebody else because the renovation and the management is all done in house.

Terry Kerr 21:46

Yeah, absolutely. It's super important to have it all in one house, so no one's pointing fingers at someone else. And really, Keith, it all boils down to value. It's the biggest piece, and just how I mentioned a few minutes ago about how we could get more in rent for the properties than we do, but we know that the properties need to continue to stay occupied, and reducing turnover is the main thing that's going to make an asset perform. And so that's kind of the foundation of where we start as a turnkey outfit, and then it's just treating our residents, treating them with the respect that they deserve, answering the phone when the you know heating element goes out on a water heater and getting it fixed quick, and so delivering value from a rent to property ratio, if you will, and then also just giving really good customer service to the resident because if you do that, the property is going to perform.

Matthew Vanhorn 22:42

I was blessed to work on the management side of the business for 14 years before jumping into the sales seat. So I know firsthand, you know how important it is to make this work for the resident. So it's not like the residents have interests and the investors have interests that are misaligned. We have to make this work for the resident to make it work for the investors. And like Terry's saying, when we provide ultimate value to the resident, our investors thrive. And so, at its core, it's it's some very basic things that we do here, Keith. That I think make all the difference. And it's just spending the time is one of the biggest thing. It's literally just answering the phone when residents call. It's just the basics that I think we do so well. And to spend that time and to answer the phone, you have to have an actual staff, you know. And here, just down the street at our central office, you can walk right in, right up to Gabby's desk, and she can help you with any of your concerns if you're a resident. And I think that's becoming so rare today, Keith, to see that level of service on the property management side. So many property managers want to do just the bare minimum, and they're really just looking to extract value and to just move on. We, the most of the people who work here, Keith, we have, I think, about 120 employees, and a lot of them aren't necessarily thinking about sort of the sales side like I do. They're simply thinking about the mission they have for taking care of the residents of Memphis and Little Rock and Dallas, and that's really all they think about, and that's why this is successful.

Keith Weinhold 24:23

I was laughing earlier. I just find it funny how you put that. Like the bar is so low for property management that oh my gosh, this manager picked up the phone on the first try. I can't believe it. Like that's how low the bar is for property management, and your management there has been superb. We're going to talk more, including how Memphis could be on the precipice of being both the brains and brawn behind AI, including why data centers can be good for communities. More on that when we come back. You're listening to Get Rich Education. Our guests are Terry Kerr and Matthew Van Horn. Of Mid South Homebuyers, I'm your host Keith Weinhold.

Keith Weinhold 25:03

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Naresh Vissa 26:36

This is GRE Real Estate Investment Coach Naresh Vissa. Listen to Get Rich Education with Keith Weinhold, and don't quit your daydream.

Keith Weinhold 26:53

Welcome back to Get Rich Education. We're talking with founder Terry Kerr and director Matthew Van Horn of Mid South Homebuyers, the provider that's provided our listeners with more income property than anyone else in history for years. That popularity created a wait list that was often several months long. I'm pleased to tell you that there is no longer a wait list, so you, the investor, can get a deal done in a pretty short period of time. One reason for that, to Terry's point, is the fact that more new construction has been brought on since they weren't able to buy rehabs at the pace that they wanted to. Since we are in a housing shortage, how do you stop the shortage? You build new. One thing that you're building new are duplexes as well. So tell us more about the duplexes that you offer because sometimes that interests investors to buy one income property and have one loan with two doors.

Terry Kerr 27:53

Sure, absolutely. And you know, Keith, actually, we just bought a whole street of duplexes. We bought 18 duplexes, and talk about forced depreciation brought the whole street up, and it's actually located. We have other duplexes besides these, but it's actually located just three minutes from here on the Green Line. Really coveted place to live. You can just hop on the Green Line and ride your bike all you know all the way. Well, goodness, about 100 miles or more. Yeah, duplexes are rare here in Memphis, and we've been fortunate to stumble across a good chunk of them.

Matthew Vanhorn 28:30

Actually, in Memphis, there was a moratorium on building duplexes for over 40 years, and so that's part of why they're rare. Wow, is that you just weren't allowed to build them for a long time, so when we're able to come across them, it's a great thing because we know investors love them. And the fact that we're able to grab 18 right here in Midtown on the Green Line, right by our huge library, which is is an awesome place, we're really excited for those as well as the other duplexes. Like Terry said, we have others available, but be looking out for those Waynoka duplexes. Yes,

Keith Weinhold 29:04

amidst the housing shortage, I have seen many U.S. cities these past few years with zoning changes allowing duplexes to exist where only single-family residential properties could previously. Tell us more about the duplex rents and prices.

Matthew Vanhorn 29:21

Yes. So Waynoka duplexes, as an example, these are 2121, so a two one on each side of the duplex. They're compact, so I think they're about 700 square feet on each side. They are priced on the rent side at 925 a month per side, so 1850 in total rent, and so those are going to be selling for around the 220 mark.

Keith Weinhold 29:50

Okay, those are some really attractive numbers. They are ratios that work. There inside Mid South, you've done an awful lot. More to help grow your team and help better serve investors on the investor side. Now, you know, frankly, I really never look at how you're marketing yourselves to buy rehab properties over there on that side with what you're doing. But actually, sat down and had lunch in person with your marketing director a few months ago. You've got a new website now, and so much of that is the interface with the investor in the white glove service that you offer them in order to make it easy for investors. Tell us more about that.

Matthew Vanhorn 30:34

Yes, we're really proud of the new website that we've rolled out. It really is designed to make buying as easy as possible for investors, and not just buying easy, but to understand the process as well as you can, to understand and do your due diligence as well as possible from the website. And so, one thing that you'll notice is that with each property now, you can click a run profit projection is a button on each property, and it brings out a detailed pro forma. You can get downright nerdy in there. Adjust different inputs on different down payments, different interest rates, different loan products. You can toggle back and forth to see the cap rates on cash versus leveraged, and like I said, you can get downright nerdy with it, which is nice. It's something we did not have before. The pictures are really crisp on our new website now. We have available homes on our website, which is a fantastic thing for investors. Previously, with the waitlist system. We would show our website, and investors would go on there, and they would say, "Hey, there's nothing available. Right, and so that was the biggest problem. We have different markets, different products. Texas, as an example, it's going to be more high growth. Memphis is going to be more high cash flow, and so different investors have different parameters. We can actually match you to what you need now.

Keith Weinhold 32:02

You guys have such a good reputation, and also you've been offering turnkey rental properties longer than any other provider I know of in all of the United States. But because your reputation preceded you in the past, I think some people would stay on your wait list for a few months, and then as soon as one property came available, they would just take it, regardless of what it was, and they still tended to rave about your service. But today, you actually have some choice.

Terry Kerr 32:31

We do, we do. In addition to providing extra properties through new construction, we've also been fortunate to, you know, continue to develop our banking relationship. So we would not have been able to to do what we've done by ramping up volume if it weren't for our good lender partners. So, cheers to that!

Keith Weinhold 32:49

Right, and these banking relationships are what allow you to offer interest rates in the fives to investors. Well, Matthew mentioned it earlier that we really are on this tipping point, this likely pivot point where AI has really-you could have long called it the brawn behind a lot of what moves America-that being Memphis, being that transportation hub that you are-but it's also now positioned to be the brains of AI as well. I mean, perhaps the biggest infrastructure story in America is now happening there in Memphis, the most affordable major castle market in America, and I don't know that anyone has connected these dots. So it's an exciting time. Tell us about that.

Matthew Vanhorn 33:37

It is an exciting time, and I think you're right. I think investors at large have not connected those dots, like you said, Keith. Right now, if you've ever used Grok, if you've ever used Claude from Anthropic, it's being powered right here in Memphis, Tennessee. I don't know if everyone knows that of how much money that Google is pouring in to Memphis, how much Anthropic is pouring into Memphis? How much SpaceX is pouring into Memphis? It's really phenomenal. It's dramatically raised the amount of tax revenue that we've been able to generate, and that tax revenue benefits the city. And so we're already an advantaged market when it comes to investors, and this AI infrastructure I think poises us to be even stronger of a play, especially for those who get in sooner rather than later. While it's the good old days, Keith.

Keith Weinhold 34:36

We have seen what AI can do to a rental market. Now, I'm certainly not projecting this on Memphis, but San Francisco has seen two-bedroom rents up 26% year over year due to this influx of AI money that you're talking about.

Matthew Vanhorn 34:56

Absolutely, and we have been seeing rent growth in. In Memphis, and I think that's interesting because I've heard investors as I go to different conferences, and they say, "Yeah, rent in Memphis has been kind of flat. And what a lot of people tend to do is they look at reports that talk about what has happened over the past, let's say, two years. And so a lot of investors they want to invest when they get that report, and it says, "Hey, rents are up 26%. Well, once you get the report, it may not be the most optimal time. I'm blessed to be on the cutting edge of the knowledge here, you know, because I'm part of the property management company. In fact, I set the rents personally still on these homes, and so I see them ticking up, Keith. I'm not saying it's necessarily San Francisco style here, but I do see the rents ticking up here after a little bit of a period where it was a little bit flat in 24 and 25.

Keith Weinhold 35:57

Yes, we are talking to the man that sets the rents on this huge collection of properties that we have here. Memphis is now home to the world's largest AI supercomputer. That's XAI's Colossus, the biggest single-site AI facility on the planet. You touched on it. Anthropic is paying 1.25 billion a month to run Claude on it. Google just signed a deal worth up to $30 billion starting october 1 in one year. Therefore, XAI became the second largest taxpayer in the city after FedEx. And sometimes you might wonder, okay, but will that translate to that community, to that local neighborhood, well, the city has committed 25% of the property tax revenue from those sites to infrastructure in the surrounding neighborhood. So this is a multiplier effect that we're talking about in Memphis.

Matthew Vanhorn 36:54

That's it exactly. So the neighborhood where SpaceX has built these facilities, and so they built Colossus, which alone was the largest supercomputer in the world. Then they built Colossus Two, which was even larger than the first one. And by the way, they're prospecting a third facility. Guess the Colossus Three. So already the biggest. Then they built a second. They're about to build a third. And these are in the communities where we're already investing, Keith. So these are communities that are already great neighborhoods where we have great blue-collar working-class renters who love their homes from mid south, take great care of them, and now they're going to get the benefit of that 25% of a huge number in tax revenue going into improve the infrastructure in their community. So you're talking better streets, you're talking water treatment, you're talking money going into schools, which is super important. It even goes into just cleaning up the community, which is directly helpful to our property values here, and so I'm really excited that we're seeing this growth here in areas where we already were investing, Keith. So we were lucky enough to already be ahead of this even before we recognized this growth headed to Memphis.

Terry Kerr 38:19

And one of the nice things about that is, is we've already got hundreds of houses that we're managing in these neighborhoods, and so all this new growth is just benefiting the investors who've owned in these neighborhoods for many, many years.

Keith Weinhold 38:33

There is clearly some momentum here, and at worst, it provides some real ballast under the greater Memphis economy. Before I ask you two, if you have any last thoughts, I would like to cordially invite you, the listener, to an exclusive free virtual event with all three of us live. It is next Wednesday, the 30th. The event is called Memphis: The New Brains and Brawn Behind AI. Why the smart money is moving now. Sign up is open now and is complimentary at getricheducation.com/midsouth. So therefore, the webinar takes place the night before the new Google money starts flowing in to Memphis on October 1, and at the event you'll see actual properties, real cost flow numbers, and Mid South's best deal terms ever. Like we touched on earlier, with those rates in the fives and five years of property management at just a 5% rate, and these incentives are all available exclusively to live attendees. It ought to be really cool. Again, it is next Wednesday the 30th. Sign up at getricheducation.com/midsouth. Any last thoughts, fellas?

Matthew Vanhorn 39:52

We run regular tours here in Memphis. You can come visit us on site, and most people don't come. Visit us on site, but we love it when you do. So, if you are interested in seeing us firsthand, want to put your boots on the ground here, please sign up for a investor tour where we'll show you the facility here where we're sitting, show you the warehouse, we'll show you the process of renovations, we'll show you a junker home that we just bought, we'll show you one midway. We'll show you the final product. We'll show you renovated homes. We'll show you new construction, and give you a great grasp on what we're doing here at Mid South.

Keith Weinhold 40:30

That website is midsouthhomebuyers.com. Yes, I have done that tour with you guys. Yeah, it's interesting that you take us into the Junker home first, and that way we can see chronologically how you go through the process until we're in a newly renovated one near the end that's beautifully done. I still remember how much those hardwood floors shined in your product there. Yes, you, the listener, are cordially invited to join us September of 30th, a live event, all three of us. That is getresuceducation.com/midsouth fellas. It's been great having you back on the show.

Terry Kerr 41:07

Thanks so much. Thank you.

Keith Weinhold 41:14

Earlier in the show, I mentioned Memphis's 6% rent growth over the past three years. When you break it down per Zillow, that's just up 2% for Memphis multifamily, and it's up 9% for Memphis single-family rentals. Besides all the good stuff happening in Memphis, it has excited some people when they recently extrapolated their mega successful model out to the Dallas-Fort Worth metro and surroundings. For example, in Princeton, Texas, where they offer brand new construction, a two-bed, two-bath single-family home renting for 1675 a month and selling for under 200k. It's 192k. In fact, next week on the show, I will discuss what happens to real estate when stocks crash, and I'll talk about a lot more. But September 30th-that is the day of our event. It's also the day before substantially more AI investment dollars start pouring into Memphis, and the good old days could very well be investing here before that happens. Join the three of us for an inside look at why billions in new investment might be creating a pretty rare window in Memphis real estate. You're going to see actual properties, real cash flow numbers in Mid South's best deal terms ever, followed by a live Q and A, and it's available exclusively to attendees. Again, you can sign up at getricheducation.com/midsouth. Until next week, I'm your host Keith Weinhold. Don't quit your daydream. daydream.

Speaker 3 43:04

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 43:32

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

Keith welcomes back macroeconomist Richard Duncan of Macro Watch to examine where mortgage rates are headed and what's driving them there.

Duncan explains how the U.S. shifted from capitalism to what he calls "creditism" after the dollar left gold in 1971, and why today's AI investment boom, rising defense spending, and a $40 trillion national debt are all pointing inflation and interest rates in the same direction.

He also makes the case for rental property on land as a long-term inflation hedge, and answers a question many have asked: if the government can print currency, why does it collect taxes?

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. You're going to get a good idea of where future mortgage rates are headed as we're talking to one of the world's most brilliant macroeconomists today. Will AI be more inflationary or deflationary? And the profundity of how we're on the brink of moving into a completely new economic system today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. In September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Home Buyers, the largest turnkey company in Memphis with more than 6000 homes under management, for a free live webinar the likes of which I've never done before. We're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth again. that september 30. Don't say we didn't tell you. Save your spot at getricheducation.com/midsouth.

Speaker 1 1:34

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 1:50

Welcome to GRE from Lancaster, Pennsylvania, to Lancaster, California, and across 188 nations worldwide. I'm Keith Weinhold. You're listening to Get Rich Education, and I really appreciate that you're here. Yes, those two cities, though spelled the same, are pronounced differently. Framing this entire episode today with our brilliant guest, you'll learn which direction future mortgage rates are probably going to move, and it's decidedly either going to be higher or lower. You'll get a clear answer. Now I've said that trying to predict mortgage rates definitively is foolish. We're only talking about probabilities today. Look, have you ever wondered if the government can just print its own currency? Then why do they have to collect taxes from us. We're going to get that answer today. Back in 1971, the U.S. economy left a system of capitalism, in fact, and embarked on a journey of creditism as defined by today's guest. Well, now we're about to leave creditism. You'll learn what is poised to replace it, and it is an AI-fueled answer. You know, to prep you with some context today, I've said it here before. But when you start talking about the enormity of a national economy, the words billion and trillion start to get thrown around a lot. A trillion seconds ago, you know how long ago that was. That takes you further back than the Roman Empire, because a trillion seconds is 31,700 years. Well, 31,700 years ago, that is just about as far back as when the plains of Europe were being roamed by Neanderthals. Yeah, that was a trillion seconds ago. Coming up on the show here, the man who wrote the book on the Pareto principle 30 years ago. That's the 80-20 principle, where 20% of your effort yields 80% of the results. We'll talk to him and learn how those insights can improve your life on a different upcoming episode.

Keith Weinhold 4:08

Here, the book Rich Dad Poor Dad was originally written by two authors. One of those two was Robert Kiyosaki. We had Kiyosaki on the show here with us in June, and by the way, the New York Post recently wrote an article, and they cited the Get Rich Education podcast in how Kiyosaki revealed on the show here that he is 1.2 billion dollars in debt. You can find that in the September 1st edition of the New York Post. That's the June 1st episode of the Get Rich Education podcast that they're citing. Well, a lot of people they don't know who the other author of Rich Dad Poor Dad is, but we're going to have her here with us on the show soon. So some really fascinating episodes coming up. Let's meet today's guest. Returning this week is one of the foremost macroeconomic minds in the world. He was this show's first ever guest nearly 12 years ago on episode seven. A prolific author, he publishes the popular video series Macro Watch at RichardDuncaneconomics.com, and he's really influential. For example, not long ago, he presented his economic policy proposals to congressional members of the House Ways and Means Committee. Hey, it's a warm Get Rich Education. Welcome back to the incomparable Richard Duncan.

Richard Duncan 5:39

Thank you, Keith. Thank you for having me back on.

Keith Weinhold 5:42

I don't know if you and the audience are ready for this. This is some perspective. It recently made news when the U.S. hit its national public debt milestone of $40 trillion. When Richard made his GRE debut here in November of 2014, it was $18 trillion. That national debt has more than doubled since you were first here, Richard.

Richard Duncan 6:07

That's right. The government has been playing probably the leading role in keeping the economy growing, and a couple of times since then has played the sole role in preventing a new Great Depression in the aftermath of the crisis of 2008 and during COVID, it's the massive government budget deficits, often more than a trillion dollars a year. Last couple of years, it's been 1.8 trillion dollars. That's been driving the economy, and whenever it needs some additional support, the Fed steps in and creates a few trillion dollars here and there, and combined they've been keeping the economy growing and, in fact, booming. And wealth has absolutely exploded as a result of the government spending and the Fed money creation. In 2008, the total wealth of all the Americans net worth $60 trillion. Now, it's tripled to $180 trillion. That that is a direct result of the government's intervention through budget deficits and paper money creation by the Fed.

Keith Weinhold 7:14

I will call that the world's least desirable investment portfolio minus 40 t. That is one way to think about it, but when you bring up interventionism, you know something I shared with the audience about a month ago, Richard. It is just remarkable to think about all the crises we've had just since 2020. We had COVID, we had Russia's invasion of Ukraine, we had Israel, Gaza. We had tariffs. Now we've got the war in Iran, and what is the result of all this? Largely due to government interventionism. Oh, both the stock market and real estate market in the U.S. are near all-time highs.

Richard Duncan 7:54

Who would have imagined? But things work very differently now than they did in the old days when money was backed by gold, and the Fed and the government played a much smaller role in the economy. It's a different world now. That was capitalism. This is creditism. Our new economic system is driven by credit growth, and whenever necessary, the government steps in with massive budget deficits, and the Fed steps in with massive money creation to make sure that credit keeps expanding and the economy keeps growing, because if credit doesn't keep expanding, if it even dips a little bit like it started to in 2009, then the whole bubble implodes and we repeat the 1930s Great Depression, probably followed by what happened in the 1940s.

Keith Weinhold 8:39

This is interesting. When you were first here 12 years ago. You talked about how society isn't so much capitalism that it's creditism, and you expounded on that. And before we're done, I know that we have now morphed into a new ism, post-creditism that Richard is going to share with us, it's fascinating. But Richard, since you were last here, the Iran War is new. It's been going on for over six months now. So I'd like to get your thoughts on that, and principally, if the Iran War is going to create lasting inflation or only a temporary energy spike. What are your thoughts?

Richard Duncan 9:20

Let's broaden this out. I know that your listeners are very interested in in real estate, and of course that's very impacted by interest rates. And interest rates are impacted, of course, primarily by inflation. So it is true that the Iran war is pushing up energy prices, and that's pushing up inflation. It's not just Iran alone. Before that, we had trade tariffs, and that's pushing up inflation. And on top of that, we've simultaneously got this extraordinary AI investment boom, and the investment by the hyperscalers is just mind-boggling. The four biggest hyperscalers-Amazon, Alphabet, Microsoft, and Meta-they're expected just the four of them to invest something close to $750 billion this year. 750 billion, just four of them. Now, to put that into perspective, the U.S. military, in one year, the most recent year, only spends half that much on procurement and research and development, roughly 320 billion. You've got these four hyperscalers spending twice as much as the U.S. military does on procurement and research and development. That is just hard to wrap your mind around, and of course, that's pushing up everything from the cost of memory chips to electrical equipment, the cost of electricity itself, power generation equipment, and all the kinds of materials that go into building data centers. So that's another source of inflation. And then there is this wealth effect that I just referred to a minute ago. Wealth has tripled from $60 trillion to $180 trillion since 2008. All that wealth is giving a lot of rich people a lot of money to spend on a very large scale, and that also is inflationary. So all of those things are inflationary, and none of them seem to be going away in the immediate future. Now, on top of that, the inflation is not the only thing that is affecting the interest rates. Other things are affecting the interest rates as well. For instance, the budget deficit this year looks like the U.S. budget deficit is going to be quite close to $2 trillion. So that will be $2 trillion of government borrowing, and this doesn't look like it's going to go down anytime soon either. President Trump is requesting $1.5 trillion for the total defense budget in fiscal year 2027, which starts in October. That's up from just $900 billion in fiscal year 2025, so that's a huge increase in military spending, which makes the percent-

Keith Weinhold 9:20

Increase plus, y

Richard Duncan 10:52

Going to keep growing, and that spending will be inflationary as well. But so the government is going to have to borrow, so the demand for money from the government is enormous, and as I've just mentioned, because of the AI boon, the hyperscalers and many of the other companies in the AI industry or related to the AI industry, they're also tapping the bond market on a very large scale. So demand for borrowing from these AI-related companies, the demand is pushing up interest rates. This is not directly related to inflation, so you've got a lot of demand for borrowing from the government and from the private sector related to artificial intelligence primarily. So that's on the demand side for money, and on the supply side, well, the United States is not making a lot of new friends these days. We seem to be losing friends pretty quickly, and many of the people who were very enthusiastic about buying American government bonds in the past are becoming increasingly reluctant to do so. Most of them still are. Most of them don't really have any viable options, but on the margin, there are fewer friendly buyers of our debt, and so fewer people willing to buy the debt also puts upward pressure on U.S. interest rates. So recently, the 30-year U.S. government bond hit a 19-year high at 5.33% That's a very high number, and this has spooked the Treasury Department. Treasury Secretary Besant has begun doing some very unusual things that suggest that he's very concerned. He has helped stop the yen from weakening by selling some euros that the U.S. government owned and buying yen. He did this to make the yen stronger, and this meant that Japan wouldn't have to sell its U.S. government bonds in order to have dollars to use to buy yen to make the yen stronger. So that was a strange move.

Richard Duncan 9:20

And then more recently, he's announced that the Treasury Department is going to start buying twice as many long-dated bonds as it has been doing. Each operation now, the Treasury Department has been buying $2 billion worth of bonds at the long end and financing it with short-term borrowing. So borrowing at the short end, the say two-year bonds, which have a much lower interest rate, and using that money to buy 10 or 30-year bonds that have a higher interest rate, in order to push up the bond prices and push down the bond yields at the long end, to try to hold down the 30-year bond yield and the 10-year bond yield, which of course directly affects the mortgage. This is beginning to seem like there's some degree of, well, let's call it perhaps not panic, but deep concern in the Treasury about how high interest rates in the U.S. are going, and just moving forward with this idea, all of these pressures, the inflationary pressures are not likely to go away anytime soon. The demand for borrowing is not going to go away anytime soon. So there's going to continue to be this upward pressure on interest rates. And I think ultimately, what we are going to see is another big round of quantitative easing from the Fed. The Fed is going to have to step back in and announce that it's going to create a great deal of money one more time, and use that money that it creates to buy government bonds to push up their price and to drive down their yield. And we shouldn't forget that already the Fed is currently printing, creating money. It launched a new program. What is it called? Reserve management purchases. This was a program they announced in December last year, where they were just going to create some money and inject bank reserves into the financial system, so that they could manage reserves at a good level, so everyone would have plenty of liquidity. Just since December, they have created $210 billion. This is kind of going under the radar, but $210 billion since December is not an insignificant amount of money.

Richard Duncan 14:49

If the budget deficit this year turns out to be 2 trillion, then that's financing 10% of the government's budget deficit, right? More than 10% So we've already got a significant amount of money creation by the Fed going on currently, and that's not enough to prevent the yields from moving sharply higher. So I think what we're going to get is another much bigger round of quantitative easing in the not too distant future, and that's going to have a lot of ramifications.

Keith Weinhold 17:00

That's a really interesting insight, and Richard, one word keeps popping into my head as we have this discussion. Okay, inflationary pressure correlates with higher interest rates, sure, but how much are these high bond yields, which flow right over to our mortgage rates, a result of an erosion in trust. I'm thinking about trust

Richard Duncan 17:24

to some degree, yes, but not overwhelmingly. The reality is, at the end of the day, there is a certain amount of money in the world that has to be invested somewhere, and that is the most important fact to understand. There is a pool of money; it keeps getting larger, and it has to go somewhere. And U.S. government bonds are considered the safest place for it to go. For instance, the United States has a very large trade deficit with the rest of the world. For the last two years, the current account deficit, which is more or less the trade deficit, has been 1.2 trillion dollars a year. It's easier to understand it as a trade deficit. That's been throwing off 1.2 trillion dollars into the surplus countries. The surplus countries sell things in the United States, countries like China and Vietnam and all the others. They sell things in the United States that they make at home. They get paid in dollars. They take their dollars back home to China and Vietnam and all the other countries, and what do they do with the dollars? They own dollars. They've got to do something with those dollars. They're getting 1.2 trillion more dollars every year. Now, the thing they do with it primarily is they buy treasury bonds with it, and so there is an inherent and growing demand for treasury bonds. You may be thinking, okay, they could take those dollars and they could convert them into euros. That's true, they could, but whoever they buy the euros from, they then own dollars, and they would need to buy U.S. dollar-denominated assets with them. The main driver behind the buying of Treasury bonds is just the fact that there are so many dollars in the world, an increasing amount of dollars outside the United States that need to be invested in U.S. dollar-denominated assets. People can lose confidence in "quote unquote, but what are they going to do with their dollars? It has to go somewhere, and so it ultimately ends up going round and round, and an enormous amount of it ends up in U.S. Treasury bonds, and that's not going to change so long as the U.S. has a very large trade deficit with the rest of the world. The rest of the world is going to keep accumulating dollars for that reason, and they're going to keep accumulating Treasury bonds for that reason.

Keith Weinhold 19:44

Well, what do these effects mean for real estate, Richard? I mean, which force you think will ultimately win for housing here with this increased inflationary pressure? Is it more of a damaged affordability problem, or do we see rising? Placement costs that continue to help float real estate values up.

Richard Duncan 20:05

Real estate prices, home prices, have not been performing very well over the last year to two. Pretty flat, unlike in prior years, immediately after COVID when they were booming. I suppose that's what we're going to continue to see for some time. If interest rates remain high, the affordability is not there. But if we do get this new round of quantitative easing, which I think is a real possibility, then that will effectively push down the interest rates, making home affordability better. And at the same time, by creating more money, that does push up asset prices across the board. So over the long run, I do believe that real estate is a very good investment, and also it can be a very good investment from the point of view of providing diversity in your portfolio. I'd like to focus in particular on it can be an inflation hedge. So, if you buy a house and use a say a 30-year fixed mortgage, and then we or a 15-year fixed mortgage to pay for a significant part of that purchase, and then we do get inflation, then the inflation eats away your mortgage. Your mortgage evaporates because of the inflation, so in that way you're somewhat protected from the risk of future inflation by having inflation destroys your debt. In other words, so that helps. So I do believe that buying houses, I think rental income is a very good investment, particularly houses on a piece of land buy the house with a fixed rate mortgage. You rent out the house, and over 10 to 15 years, the house pays for itself, and it keeps appreciating in value over time. Decade after decade, it will become increasingly valuable over the long run, and you'll have also a supply cash flow, and you'll have this inflation hedge that I just described. So I think owning rental property that is on land, I'm not so keen on buying condos. There's no limit as to how many condos can be built in the air, but there is a limited amount of land in the world, and so land is as good as gold because if gold goes up; the land will also go up for the same reasons. So I think owning rental property is a very important part of having a broadly diversified portfolio, which is usually the best thing for most people to do to have a broadly diversified investment portfolio.

Keith Weinhold 22:37

Yeah, in this era of both war and increased interventionism, yeah, we still have a resource here, real estate that is scarce, that is necessary, and is built with this basket of goods and commodities constituting that replacement cost.

Richard Duncan 22:53

I agree.

Keith Weinhold 22:55

Well, Richard and I have a lot more to talk about when we come back, including what phase of the economy that we're in post-creditism and a lot more. You're listening to Get Rich Education. Our guest is the publisher of Macro Watch, Richard Duncan. I'm your host, Keith Weinhold.

Keith Weinhold 23:12

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Robert Helms 24:44

Hey everybody, it's Robert Helms of the Real Estate Guys Radio Program. So glad you found Keith Weinhold and Get Rich Education. Don't play your daydream.

Keith Weinhold 25:04

Welcome back to Get Rich Education. I'm your host Keith Weinhold. We're talking with Richard Duncan. Check out him and his work at RichardDuncanEconomics.com. So much interesting stuff has happened in the macroeconomic world since we last had him here with the Iran War, with the AI arms race heating up, and with hitting that milestone of $40 trillion in total public national debt. Which, by the way, that $40 trillion-that is more than the combined debt of Germany, Japan, France, Italy, the UK, and Canada. That's basically the entire rest of the G7 just to try to get your head wrapped around that $40 trillion number, and you know, Richard, when it comes to the government, their income and their expenses and their assets in their debt, some wonder, including me, if the government can just print its own currency, then why must they collect taxes from us?

Richard Duncan 26:04

Okay, well, to understand the answer to that question, it's necessary to understand that it wasn't always possible for the government to print its own currency. Up until 1968, 1971, the Fed was legally required to back the dollars it created with gold, and the United States had the obligation to allow other countries to convert the dollars they accumulated into U.S. gold. So up until then, that wasn't a possibility for the government to finance its spending by money printing. And so, over the centuries that preceded, the government would tax the people to obtain the money that it needs for spending. So imagine today: here we are. The government now is spending about $7 trillion a year, and its tax revenues are about $5 trillion a year. So if it suddenly said, "Okay, we're not going to tax anyone anymore, that would mean that people would have an extra $5 trillion to spend, and if the people started spending $5 trillion, we would have hyperinflation, because there's only a limited amount of industrial capacity in the United States, or even in the world for that matter. It couldn't absorb a $5 trillion of additional spending from households and businesses, so it's not that they can't technically create the money as much money as they want to pay for everything they want. The constraint is not money creation technically; it's the inflation that it would produce if they just stopped taxing everyone and just created money instead. So that's the reason they can't.

Keith Weinhold 27:46

Just slowly taper it away and give people some income tax relief. Why can't they do that?

Richard Duncan 27:52

Well, that's what they've been doing. Taxes are far lower now than they were under when President Reagan took office, and that's one of the reasons we have $40 trillion in debt.

Keith Weinhold 28:03

Okay, but that is how the income and expenses look on an annual basis, right, Richard? This is how I think of it. Like the United States basically has 5 trillion in annual income, much of it from personal tax collection, and 7 trillion in annual expenses. That's how we get to the annual deficit of about 2 trillion, which rolls into that $40 trillion of overall debt.

Richard Duncan 28:30

That's right. What you said is correct. But we would have much more than $5 trillion income from taxes had the government not reduced the tax rate so often and so radically, starting in the early 1980s under President Reagan, if taxes hadn't been cut so sharply, we wouldn't have a two-trillion-dollar budget deficit, $40 trillion of government debt. So they've already been tapering the amount that they tax by cutting tax rates very sharply over the last decades,

Keith Weinhold 29:02

I guess a lot of people, admittedly me included, haven't been thinking about it that way. Maybe because it's painful, and I do write checks to the IRS. But when we talk about this propensity for continued inflation, one component of this is what's happening with the AI arms race, and I know you've looked at this closely. You know, because one thing I think about is, well, wait, will the AI arms race actually be deflationary over time because it lowers production costs and makes us more efficient, or is it going to be inflationary because it requires enormous capital and electricity and infrastructure in the building of these data centers. So you know I can see it going either way with the AI arms race, inflationary or deflationary. But since you studied it a lot, including talking about it on macrowatch, tell us more about the AI arms race and what this all means, Richard.

Richard Duncan 29:59

So yes. On your point that you just made, in the short term, it looks like the AI boom is going to be inflationary. Yeah, it's driving up electricity prices, land prices, and all of the things that we discussed before. Everything that goes into making artificial intelligence intelligence, including memory chips, which drive up the cost of your iPhone and iPad. So it's inflationary in the short run, but over the long run, it could probably and probably will be quite disinflationary or even deflationary. I think that's several years away. Now, moving on to the next question, the AI arms race. I think it's very helpful to understand the world around us by putting it in the context of how our economic system has evolved since dollars ceased to be backed by gold. 1968, the Fed was no longer required to back dollars with gold. 1971, President Nixon said, "Sorry, Europe, we we said we would let you convert your dollars into gold, but we changed our mind and you can't. So after that, there was no longer any gold backing for the dollar, and here are a list of things that have happened as a result of that change. Our huge trade deficits couldn't have happened if the dollars were backed by gold. The huge budget deficits that we have couldn't have happened. The Fed couldn't have created trillions of dollars through quantitative easing. Inflation rate has fallen from the 1980s, from the the mid teens to well below the Fed's 2% inflation target for most of the last 20 years, and wealth in the United States has exploded, as I mentioned, from 60 trillion to 180 trillion. That wouldn't have happened if dollars had remained backed by gold because credit has exploded. Total debt or total credit, two sides of the same coin. Total debt in the U.S. It's government debt, household debt, corporate debt, Fannie Mae, Freddie Mac debt, all the debt. It first went through $1 trillion in 1960. Now it's 110 trillion. So 110 times increase in my lifetime in total debt. That wouldn't have happened if dollars had remained backed by gold, and because of all of that credit expansion and the massive trade deficits we had with the rest of the world through globalization occurred, and that allowed Asia to industrialize, and Asia wouldn't be industrialized as it is now. China wouldn't be an economic superpower as it is now had dollars remained backed by gold, because it wouldn't have been able to grow through export-led growth. And so, China, instead of looking like it does today, it would look like it did in 1970, basically being a very poor third world country, and globalization has pulled hundreds of millions of people out of poverty.

Richard Duncan 32:47

They would still be in poverty had dollars remained backed by gold. The Soviet Union probably would still be around because the U.S. under President Reagan wouldn't have been able to to spend so much on the military that it bankrupted the Soviet Union trying to keep up with us, and finally, China wouldn't be the national security threat that it's become now because it wouldn't have had a trade surplus and it wouldn't have had any economic growth to speak of for the last 50 years. That's the world that we're living in now. The world we live in now is the direct result of dollars no longer being backed by gold, and to understand the world around us, you have to understand that that's the starting point. Now, coming to your question, this explosion of wealth that has been created under the system that I call creditism-we did have capitalism. It was driven by saving and investment, Capital accumulation, hence capitalism and investment that drove capitalism. That's not how our system works. Our system is driven by credit creation and consumption, and more credit creation and more consumption. That's creditism. It used to be driven by private sector credit growth, but the private sector became too heavily indebted in 2008, and they blew up, and that almost resulted in the complete collapse and bankruptcy of every bank in the United States and probably most of the banks around the world as well. So the government had to step in, and since that time, it's been government borrowing primarily.

Richard Duncan 34:17

This driven creditism and kept credit expanding with the help of the Fed, so this has been the evolution of creditism and has produced extraordinary amounts of wealth. So it's had two consequences that we need to focus in on now. For one, I've mentioned already, it turned China into an economic superpower, which is now on the verge of overtaking us, not just economically, but also technologically and militarily, it's become an extreme national security threat to the United States. But the second thing that has occurred, the creation of all of this wealth has provided the funds that have allowed a. Technological revolution to occur so quickly, this AI revolution that we're now living through, that is the direct result of the ample liquidity that has been created and flowing around the world, originating largely from the Fed's printing press and the government's budget deficits. That's created trillions and trillions and trillions of dollars of wealth that wouldn't have existed otherwise, and that wealth has gone into funding this development of data centers and the technology that's created the artificial intelligence. Now we are experiencing this AI revolution, and it's become quite apparent to everyone that whoever wins the AI arms race is going to rule the world. We're on the verge of machines becoming more intelligent than humans, and then after that point, through self-training and self-improvement, going on 24 hours a day, they're going to become exponentially more intelligent than humans very quickly, so whoever wins this race is going to have dominance of every other country in the world. So, as creditism has evolved, it has created a national security threat in China and has created artificial intelligence. And as a result of the two combined, we now have this artificial intelligence arms race with the United States that must win. That's why President Trump is calling for a 1.5 trillion dollar defense budget.

Richard Duncan 36:30

So this is one of the main themes that MacroWatch has been focused on this year. I've done a series of videos on the new defense spending boom, looking in one video at the traditional titans of defense like Lockheed Martin, RTX, Boeing, in another video looking at the new up-and-coming Silicon Valley challengers in the defense industry, companies like Andrel, Palantir, and most important of all, SpaceX. This is now the driving force in the economy. the The absolute necessity of winning this AI arms race is going to require much greater government spending on the military, and it's going to require what we're seeing extraordinary amounts of money being invested in developing artificial intelligence because whoever gets there first wins, and whoever doesn't is going to be subjugated by the winner. So that's where we are. So that brings us up to we've been discussing the change from capitalism into creditism, and we've seen how creditism has evolved from being first driven by private sector credit to later being driven by government sector borrowing and spending, now leading to this AI arms race, which I think we're now moving toward a different kind of economic system beyond creditism. So let me back up just a minute and say that economic systems are best defined by the constraints that limit what they can do. So we've been talking about capitalism. Capitalism's main constraint was the requirement that money be backed by gold, and when that constraint, when that gold-backed money constraint was removed, the constraint was gone. The economic system evolved into a different kind of economic system. Creditism has created extraordinary amounts of wealth and growth since early 1970s. This is not the first time economic systems have evolved. If you look back through history, there have been many different kinds of economic systems. They've all been defined by the constraints that binded what they could do. If you go back to hunter-gatherer economic system, that economic system was constrained because the people didn't have tools for cultivation or any way to store the food that they created for long-term storage, but once they developed that those tools and the ability to store food, those constraints were removed and they evolved into a different kind of economic system. Ultimately, into feudalism. Feudalism was an economic system that was constrained by very poor roads, so there was very little transportation. There were no banks, so no banking system or credit, and there was very limited legal social mobility.

Richard Duncan 39:28

But eventually, cities developed, and because of cities, trade flourished, and that removed the constraints that had defined feudalism. Okay, so fast forward, capitalism was constrained by gold-backed money. When gold was removed, we moved into creditism. Now here we are in creditism, late-stage creditism, and we're seeing this phenomenal expansion of artificial intelligence. So every economic system throughout history has. Had two constraints in common. There have been labor constraints, a limited labor supply, and there has been the constraint of limited human intelligence. We're now, thanks to artificial intelligence, on the verge of removing those two constraints that have limited every economic system up until today, when artificial intelligence is embedded in humanoid robots, that's going to remove the labor constraint. We will no longer have any labor constraint. Robots will be able to produce all the labor and then some that's required. So there goes the labor constraint, and when we hit superintelligence, that's going to remove the constraint of human intelligence that has bound economic systems. So those have been the two primary binding constraints on every economic system so far, and they're just now about to be removed by artificial intelligence. We're moving into a new era without intelligence constraints and without labor constraints, and this is going to radically change everything. When those constraints are removed, creditism is going to evolve into an economic system that's no longer driven by credit creation. It's going to be driven by intelligence creation, knowledge creation, or an explosion of cognition. So I call the new system that we're moving toward cognitism, because rather than being driven by credit as creditism is, it's going to be driven by exponential expansion of intelligence or cognition, and it's probably going to create undreamt of wealth, but it's going to completely change from bottom to top everything about the world and society and social relations that exist today, and that is what we're very quickly moving into over the next 10 to 20 years. That that's where we're going to go, and I believe it deserves a new name. So I've coined the term cognitism to describe this new economic system. The post-creditism world is cognitivism.

Keith Weinhold 42:12

Wow, this is massive. Ever since we met, you talked about creditism, and really, that's the economic system that we live in, not capitalism, so we're on the brink again of moving from creditism into cognitivism, because oftentimes these forces and their change are defined by having the constraints removed, and we're on the brink of removing the labor constraint and the human intelligence restraint from creditism to move us into cognitivism over the next 10 or 20 years. I'm just reviewing what you said as I'm thinking this through, Richard. Talk to us at least a little about what the ramifications are for us, just everyday people and investors with this cognitimism economic system.

Richard Duncan 43:02

It's very difficult to guess what the consequences are going to be. They're going to be not only economic, but they're going to very quickly become political, and the political consequences are difficult to guess how they will play out. But it does look like when robots can do all the manual labor, and machines can do all of the intellectual work on a much more accurately, much more rapidly, much more flawlessly than humans can. There won't be any need for humans to have work unless legislation is in place to ensure that they do, and if they don't have work, then they're going to not have any income. And if they don't have any income, they're going to start being very unhappy, and they're going to start rioting, and governments are going to begin to fall, and we don't know how that's going to play out. So there's going to have to be arrangements made to ensure that people do have enough income to benefit from all of the extraordinary wealth that could be created through limitless labor and limitless intelligence, but to work in a way that can satisfy our wildest dreams and beyond our wildest dreams is going to be a matter of restructuring the political economy, if you will, to ensure that people benefit from this technological revolution that is now speeding up.

Keith Weinhold 44:30

Yeah, I would say all we do know is we don't know and how it's going to turn out. But you know whether it's been tractors replacing horses or whether it's been the advent of the assembly line, or whether it's been the advent of the internet, people always say it's going to destroy net jobs, and historically, it really hasn't.

Richard Duncan 44:53

You're right, but the replacement of horses with automobiles didn't really work out so well for the horses.

Keith Weinhold 45:00

So, is there any way we can think about this in order to stay nimble as investors and everyday people, Richard? As we move into cognitism.

Richard Duncan 45:10

Absolutely, everyone needs to subscribe to Macro Watch, and they'll be able to follow it very closely there as I map it out as it unfolds from month to month.

Keith Weinhold 45:22

They should, and it's fascinating, and you've really been on the cutting edge of that. Tell us more about subscribing to Macro Watch, something that a lot of listeners should be interested in.

Richard Duncan 45:33

So my background is has been in finance. I started working in Hong Kong in 1986 as a securities analyst, I later on became an economist and then a strategist. I worked for the World Bank for a couple of years in Washington. I was the head of global investment strategy in London for ABN AMRO Asset Management. So my background is in finance, and I have spent most of my career living in Asia for the last 40 years, primarily in Asia. Along the way, I've written four books. The first one was the Dollar Crisis back in 2003. The most recent one was The Money Revolution in 2023. So my background is in finance. But 13 years ago, I launched Macro Watch. Macro Watch is a video newsletter. Every couple of weeks, I upload a new video. It's essentially me making a PowerPoint presentation discussing something important happening in the global economy and how that's likely to impact asset prices. So it's essentially become a compendium of the global economy. Essentially, everything that has happened in the last 13 years at the macro level that matters is discussed in these macro watch videos. For instance, there is a complete history of everything the Federal Reserve has done since it was founded in 1913. There is a complete description of government debt from the beginning, the increase in government debt and budget deficits. It explains things like how the Fed actually creates money, what are bank reserves, what is Japanese monetary policy, what is European monetary policy. All the major macroeconomic developments are described there and are available to subscribers every two weeks. They upload a new video, and so if your listeners would like to check it out, my website is richarddunkeneconomics.com. That's richarduneconomics.com, and if they'd like to subscribe, hit the subscribe button. And I'd like to offer everyone a 50% subscription discount.

Keith Weinhold 47:36

Thank you.

Richard Duncan 47:36

They'll be prompted to put in a discount coupon code if they use the discount code GRE, like Get Rich Education, they can subscribe at a 50% discount. They'll find it very affordable, and at the very least, they can sign up for my free blog while they're there, and they can follow my work that way.

Keith Weinhold 47:57

It is fascinating the AI arms race poised to have us completely change economic systems from criticism to cognitism. Richard, is there any last thing that you would like to leave us with? Whether it has something else to do with AI, maybe I didn't think about asking you, or something with the Iran war and the inflation, or anything else in the economy. Any last thought for what we should do or be aware of?

Richard Duncan 48:24

One thing, of course, I think is very important is for everyone to learn to use AI as much as they possibly can. It's easy to use, and it will teach you how to use it. And as we evolve into this new world is going to be crucial to make use of this most important tool humanity has ever had-the ability to use AI. This suddenly gives you access to all the world's knowledge. All you have to do is ask, and it will tell you in a very friendly way. So, by being able to use AI, you'll be in a much better position to survive the transition and prosper in the decade ahead.

Keith Weinhold 49:09

That is an actionable way to stay on top of it, Richard. It's been valuable as always. Thanks so much for coming back onto the show.

Richard Duncan 49:16

Thank you, Keith. I've enjoyed it.

Keith Weinhold 49:24

Yeah, keen insights from Richard as always. Yeah, the U.S. sure has been making enemies the past couple years. That could make other nations less likely to buy our debt, and then in turn, it takes higher interest rates in order to attract bond buyers. Well, that in turn increases mortgage rates. But to some extent, other nations have to buy our debt. Richard says that a bigger round of future QE is a distinct possibility. That is code for money printing. That's clearly. Inflationary, but few seem to know we've already been involved in liquidity operations since last December. Whether that's called QE or something else, it is taking more government spending to keep up with the AI race. That's inflationary too. What about that? When horses were replaced with cars. How did it work out for the horse? I don't know if that made it better or worse for the horse. Maybe horses were out of work, but then they got to live free. Will AI make that very predicament apply to humans? Nobody knows. The economic system will have moved from creditism to cognitism when the economy is no longer driven by credit creation but intelligence creation, from RichardDuncanEconomics.com, you can hit the subscribe to MacroWatch button and enter the discount code GRE for a 50% discount. Just about everything that you heard today is poised to drive mortgage rates higher, not lower. Big thanks to Macro Watch Mastermind Richard Duncan today. Next week it's a more real estate centered show. I'm your host Keith Weinhold. Don't quit your daydream.

Speaker 2 51:21

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.

Keith Weinhold 51:49

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

Keith breaks down the "baseline trap" in investor psychology, showing how rising income and lifestyle creep can quietly undermine the feeling of financial freedom.

He then shares a grounded outlook for U.S. home prices, outlining how inflation, AI-driven job growth, limited inventory, and strong homeowner equity are shaping the market.

He closes with a data-driven look at where population growth is heading through 2040, especially in Texas and Florida, and what that could mean for long-term real estate demand and investing strategy.

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Complete episode transcript:

Keith Weinhold 0:01

Welcome to GRE. I'm your host Keith Weinhold. Investor psychology often falls into the baseline trap. Learn what's going to happen to home prices over the next year. Then more than half of America's population growth until 2040 will occur in just these two states. All today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. In September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Homebuyers, the largest turnkey company in Memphis with more than 6000 homes under management, for a free live webinar the likes of which I've never done before. We're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth again. that september 30. Don't say we didn't tell you. Save your spot at getricheducation.com/midsouth

Speaker 1 1:34

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 1:50

Welcome to GRE from Jackson Hole, Wyoming, to Jackson, Mississippi, and across 188 nations worldwide. I'm Keith Weinhold. This is Get Rich Education, and Happy Labor Day. Let's talk about your investor psychology, because as you grow your wealth and your portfolio size, there is a trap that you will almost certainly fall into, and I'm not infallible. I've fallen into this trap to some extent too. That is the baseline trap. It's the tendency for every improvement in your income, your wealth, or your lifestyle to become your new normal. Once this happens, the improvement stops feeling like progress, and you need even more just to feel equally successful, if you get used to flying first class and then you have to drop back to coach again, it feels less like flying and more like being deported. Psychologically, we fall into the baseline trap because the human mind evaluates Life relatively, not absolutely. We don't simply ask ourselves how good is my life, how good is my situation. Instead, we ask how does this compare with what I've recently experienced, what I expected, and what others have, and there are a number of forces that drive the baseline trap. One is hedonic adaptation. Hedonic means pleasure seeking. People rapidly adjust to improvements. The first month of receiving a new $5,000 in passive income that feels transformative. After two years, it feels completely ordinary. The income didn't become less valuable. Your nervous system simply stopped registering it as new. Yesterday's luxury became today's wallpaper. A force driving the baseline trap is a shifting reference point. Gains and losses are measured against a mental baseline. Once your portfolio reaches, say, a $2 million net worth, well, your mind soon begins treating the $2 million as mine. You're like, hey, this is mine now, even if much of it came from recent appreciation. A decline to 1.8 million, therefore, feels like losing 200k rather than still having substantially more wealth than you did just a few years ago. Well, instead, you're only focused on the 200k paper loss. Then there's loss aversion psychologically. Losses generally hurt more than equivalent gains feel good. After a higher standard becomes normal, surrendering and. Any part of it feels like some blood-curdling loss. That's why reducing spending from 20k to 15k per month that can feel painful, even if 15k once felt luxurious to you.

Keith Weinhold 5:16

There's also the lifestyle creep component. People convert variable gains into fixed commitments. What do I mean? I mean like a strong income year. Oh, pretty soon that becomes a larger mortgage. Rental cash flow that becomes a vehicle payment. A bonus that becomes private school tuition, portfolio appreciation. Well, that supports new borrowing. See, pleasures that were once optional have now become obligations. And you got to ask, wait, how did that happen to you? You're supposed to have a life of options and not obligations. That's what financial freedom is supposed to be. The baseline then is no longer merely psychological; it becomes embedded in real monthly expenses. Then there's also the dangerous driver of the baseline trap that's called, oh no, social comparison. We commonly measure success against our peers, but instead, what you should do is measure it against your former self. Because as you become wealthier, see your comparison group changes too. If you've got five rentals, you soon stop comparing yourself with someone that owns none, you might even begin comparing yourself with people who own 50 of them, and why not? It's natural, after all. That is where you want to go, despite enormous progress. See, that's how you can feel left further behind. Then there's the recency bias. Your mind gives enormously disproportionate weight to recent experience. A few years of 15% returns, like what happened in 2021 and 2022 in real estate. Oh, you could begin expecting 15% after rapidly appreciating real estate, continued appreciation feels normal. A favorable cycle gets mistaken for the natural baseline, and then when conditions normalize, ordinary performance feels rather defective. Then there's identity inflation. That's a trap. This is when accomplishments become woven into your very identity, like I'm a multi-million-dollar entrepreneur, or I own 20 properties, or my income always grows. Okay, once success becomes identity, maintaining the baseline feels necessary just to preserve your self worth. Now, with this condition, see a temporary setback. It doesn't merely affect the numbers.

Keith Weinhold 8:08

It feels like evidence that you're becoming a lesser person, and the brain rewards progress more than possession. Humans are energized by movement toward a goal, reaching the goal often produces less lasting satisfaction than you expect. Buying the 10th rental creates a dopamine hit, and owning it three years later does not. The investor therefore creates another target, not always because another property is even needed, but because continued pursuit restores the feeling of progress, success erases the memory of constraint. As your wealth grows, it becomes difficult to remember emotionally what financial insecurity even felt like I mean you might intellectually remember earning 60k, but you no longer experience today's 300k income in comparison with it. Your comparison point quietly changes from your former life to your best recent year. The paradox is that your circumstances improve faster than your experience of them? The goal is not to stop growing; it is to prevent every improvement from becoming a new psychological necessity. Keep growing your means, but don't let success redefine enough every time you achieve it, don't let it redefine enough. Let's say you acquire rentals and you do generate another 5k per month. The trap is that your spending and expectations gradually rise by 5k. You're wealthier, but you don't. Don't feel freer. Instead of investments buying freedom, they merely finance a more expensive baseline, and it can distort how you view your portfolio. 10 properties once felt like an extraordinary accomplishment, and soon 10 feels ordinary, and 20 becomes necessary. You keep moving the finish line, and this is closely related to hedonic adaptation and lifestyle creep. But it extends beyond spending because your definition of enough keeps on rising. So the antidote certainly is not living small forever-it's deliberately separating the growth rates of your assets and your lifestyle. What you want to do is grow your means faster than you grow your baseline. Really, that's the key. You're gonna be more satisfied. Instead of simply living below your means, you sure do want to grow your means, but don't let every gain become a permanent new obligation. Let some additional cash flow purchase you things like time, resilience, and optionality-not merely nicer recurring expenses. If your lifestyle rises as fast as your passive income, you're wealthier, but no freer.

Keith Weinhold 11:28

So here's what you do: when your income rises, let your lifestyle rise about half that much. Otherwise, if you upgrade your lifestyle too much, say that you receive an extra $3,000 in monthly rental income, then you add in a luxury car payment, better vacations, and more expensive restaurants. Pretty soon, that extra 3k that feels necessary instead of liberating, and then there's also the record income comparison part of the trap. Say your business earns $1 million during an exceptional year. The next year, it earns a still impressive 850k, but you experience it as failure because the unusually strong year became your new baseline. Don't let that happen. You can compare yourself to others that can be motivating, but the more important comparison is to the former you. Now, another way that investors fall into the baseline trap in real estate is how an exceptional market becomes the standard. Say that you bought rental properties in 2012. Well, 2012 was perhaps the best time to buy real estate in generations. This was shortly after the global financial crisis, so there was this confluence of low prices, low interest rates, strong cash flow, and you had little competition as well. I mean, you had it all in 2012, and those deals performed spectacularly in today's market. Available properties produce lower initial cash flow, but they could still deliver respectable total returns through appreciation, rent income, principal paydown, tax benefits, and inflation profiting. But a losing investor rejects all of those things because they aren't as attractive as the once-in-a-generation deals of 2012, or even the rock-bottom low-rate days of 2020, they fell into the baseline trap. The trap here is that an unusually favorable period for real estate became the new benchmark. It's sort of like how last week I told you about how the deal structure always changes over time from the Reagan administration until today. Today the deal is with Burr properties, and it's also with buying new builds with rate buydowns. But see, in 2012 there were almost zero available new build properties that were created for investors to rent to others.

Keith Weinhold 14:25

Over time, with these new builds that you're adding now, you're going to have fewer maintenance and repair expenses. Tenants tend to stay in new builds longer, and new builds appreciate better over the long run. See, I wasn't getting any of those benefits in 2012, and I bought rental real estate in 2012, and I bought real estate recently as well. Not falling into the baseline trap, because today it's still difficult to find any investment bet. Than residential real estate with a loan, it is a scarce asset that people are going to continue to need. So here we are today, about 15 years on from 2012. Water market conditions like now. Let's talk about that and what can we expect for the next year? National home prices keep rising, but they're only about one half of 1% higher than they were a year ago. I mean, that's an appreciation level with the enthusiasm of someone attending a seven a.m. meeting. I do expect national home prices to keep rising modestly over the next year. Let me tell you about why, and then what the drivers are. And to be clear, we're talking about single-family homes up to fourplexes here. I'll discuss apartments later today. Well, the drivers for continued price growth are many of the same reasons that home prices are up just a little since last year. There are four of them. These four are inflation, the AI boom, short inventory, and a lack of distressed sellers. So let's unpack all of these four factors that I've identified for putting a floor underneath home prices, inflationary pressure is poised to raise replacement cost, energy, wages, and tariffs make those inputs more expensive, and the more war we have, the more inflation we have. A home is a bundle of land, labor, lumber, concrete, copper, and all sorts of energy inputs, plus 14 trips to Home Depot because someone forgot the correct nails and screws. That's what a home is. Recent home price growth it has lagged today's 3.4% CPI inflation rate. So again, we're not even talking about inflation-adjusted gains here. AI that creates local housing heat. It's not so much a nationwide driver of home prices. And in a moment, I'll tell you the top five housing markets for AI-led home price growth, but how does AI investment push up home prices anyway? How does that happen? People are getting high salaries, signing bonuses, and stock options that produces well-funded buyers. They make big down payments, or they even pay all cash for homes, and when a buyer pays all cash for a home, they can pay absolutely any price because they don't have to get an appraisal that comes along with a loan for a financed property.

Keith Weinhold 17:53

That's how all cash buyers can really push up prices. The growth in AI companies that has really helped push the S and P 500 higher that fuels a wealth effect nationwide that makes everybody feel wealthier regardless of where you live as long as you're invested in the stock market but the localized effects with those higher AI wages and signing bonuses in order they are most potent in San Francisco, San Jose, Seattle, New York City, and Boston, and none of those are good cash flow investor markets. Still, short housing inventory is contributing to higher prices, and hey, it's time that we check on this again. Ever since the inventory crunch started to plummet in 2021 and reached its lowest point in 2022, I've been updating you on the housing supply, and I always keep it same same. I cite the same data source, the Federal Reserve Economic Data's active listing count, Fred's active listing count, which counts single-family and townhomes and condos, all wrapped up in this number. And the figure it still hasn't recovered at 1.1 million homes. Now it is 2% higher than last year, 2% more supply than last year, but overall housing supply is still 9% below pre-pandemic levels. And there's one important thing to keep in mind that most don't think about when you hear that figure that housing supply is 9% below pre-pandemic times in 2019, that does not mean we're 9% short. That is because even in 2019 there was a housing shortage, and we are 9% below that yet, keeping. Upward pressure on prices and the most supply-constrained markets today. It includes both good and poor cash-flowing investor markets.

Keith Weinhold 20:10

They are New York City, Chicago, San Francisco, Hartford, Providence, Milwaukee, Boston, Cleveland, Virginia Beach, and Kansas City. All of those places remain especially tight with housing inventory, and then finally, this fourth of four reasons I've cited for continued upward pressure on home prices are the fact that distressed sellers-they are few and far between-and you need a lot of those in order to have a serious down cycle, after the 2008 housing crash, millions of owners were underwater. They owed more on their homes than they were worth. Lending standards were irresponsibly loose. Adjustable rate mortgages were resetting higher. I mean, a lot of people had little choice but to sell or to hand the keys back to the bank. Distress, distress, distress. Today is almost the mirror image. Here's what's really happening with homeowners having this record equity position today-an average of over $300,000. Many also locked in at fixed mortgage rates below 5% it means that they're enjoying perhaps the cheapest long-term debt that they are ever going to have. Lending standards have been strong, foreclosure rates remain low, and virtually nobody is being forced to sell. That matters more than most people think because housing crashes need a lot of forced sellers, owners who must accept almost any price in order to escape the property. But today, most homeowners they can simply either stay put, or if they're going to move out of the home, keep it and rent out the home, or they can wait for a better offer. No distress. In other words, buyers might be frustrated, but sellers-they're just not desperate. And without desperation, it is difficult for home prices to fall sharply. So the bottom line here with today's home prices and looking into next year, home price growth is apparent, but it's weak. The ingredients for a national price collapse are nowhere to be found, so this does not spell boom or crash. Home prices appear poised to keep slowly grinding higher, but with this low affordability, that keeps them from soaring, say 10 or 12% higher. I don't see that happening. And of course, each December, I make my home price forecast to the exact percentage point for the year ahead, so you can look forward to that soon. The Get Rich Education home price appreciation forecast that I made late last year for this year. It looks like it's going to be almost spot on. Of course, unlike a lot of analysts, transparently, I also give you the result of how closely the forecast hit the target every year, so you can look forward to that too. Hey, if you like this show, there's more content where this comes from. Sign up for our complimentary newsletter. That way, you can see the graphs and charts and maps that I break down. If you like what you hear on Get Rich Education, every week I show you what's really happening with real estate rents, inflation, interest rates, and the economy, and more importantly, what you can do about it. You'll get sharp insights, useful opportunities, and a few laughs along the way. Yeah, a couple knee slappers sprinkled in there with actionable strategies, like the savviest way to get rent increases. Get smarter in just a three to four minute read every week. Join 1000s of smart investors right now at greletter.com because your inbox could use fewer coupons and more financial freedom. That is greletter.com. More straight ahead.

Keith Weinhold 24:20

I'm Keith Weinhold. You're listening to Get Rich Education. What if you got your mortgage loans the same place I get mine? You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your prequal and even chat directly with President Chaley Ridge. While it's on your mind, start at ridgelendinggroup.com. That's ridgelendinggroup.com. Let me ask you something. If you've worked hard to build wealth, is your. Money positioned to actually support your goals. A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. In full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts. They built real credibility. Go to freedomfamilyinvestments.com to book a clarity call, or text family to 66866. That's family to 66866.

Dana Dunford 25:59

This is Hemline's co-founder Dana Dunford. Listen to Get Rich Education with Keith Weinhold, and don't quit your daydream.

Keith Weinhold 26:15

Welcome back to Get Rich Education. I'm your host Keith Weinhold. There will only ever be one episode 622, and you're listening to it. I hope you're enjoying the late summer. I'm wringing every bit of time and enjoyment out of it that I can. I don't know if this part was enjoyable, but I ran an all-out mile on a track. I wanted to see how fast I could run a mile. I had a friend pace me, and I got a 631. I was happy with that since I hadn't done any specific training. Yes, a mile is more than four laps on a track as well. Did you know that? Yes, this detail-oriented shaved mammal here diligently measured off that extra nine point something meters. Ah, I'll tell you that fourth lap hurt so badly that if my buddy weren't there, I might have just quit and not finished the mile. But summer's days are numbered, and that's too bad because it is my favorite season of the year. The NFL season kicks off in just two days on the ninth, with Seattle hosting the New England Patriots in a rematch of last year's Super Bowl. So then, I guess it looks like your productivity for the week will end with a respectable two-day run as you tune in to that game. Where is the future demand for real estate going to come from? It comes from a growing population. The U.S. is expected to add 21 and a half million people from 2025 to 2040. 21 and a half million more people. The overall population it's expected to grow from about 341 million up to 363 million. That is where we're going. That's per the Census Bureau and the University of Virginia, projecting 341 up to 363 by the year 2040, which is just a little over 13 years away. Okay, so that part is not so surprising, but here is what is absolutely staggering: more than half of this entire increase is projected to occur in just two states, just two of the 50 states, more than half of the increase. Do you know what they are? In fact, I showed you a map of this in a recent newsletter, but I can talk about it and expand on it more here. \

Keith Weinhold 28:52

The two states that are expected to account for more than half of the nation's overall population growth through 2040 are Texas and Florida. They're already the second and third most populous states, respectively. It's kind of like America looked at the map, checked their weather app, and started packing sunscreen. Texas is expected to add 6.6 million residents. Florida welcoming another 4.6 million during this span. So that is over 11 million new people between them. This is like taking the entire population of Georgia and dropping it into those two already booming states, that much growth in this fairly short period of time, for real estate investors, more people that generally means more demand for our housing product, and I'll get back to the staggering Texas and Florida imbalance in just a moment. Because there are big gains in other investor-friendly southeastern states like Georgia and Tennessee, the Mountain West should swell alone. The South, okay, the region that the Census Bureau delineates as the South, which sort of runs from Maryland all the way down south and then west out toward Texas, the South just until 2040 is expected to account for 78 percent of the growth. That is just staggering. Cash flow hotbed Indiana that should grow by nearly a quarter million residents as well. The Carolinas are ballooning. Already the most densely populated state in the nation, New Jersey, that will get more dense with some pretty healthy population growth. Its residents have not discovered elbow room, but not every state is adding population. 14 states are expected to shrink, led by Illinois losing 650,000 people and New York down 457k. Again, this is all through 2040. In fact, a small loss cluster actually runs through the South, though West Virginia, Mississippi, and Louisiana-they're projected to lose 440,000 people combined. You know that whole theory that sometimes you hear people talk about, like with Earth warming and drying, you're going to have people stampeding toward the freshwater Great Lakes states. That is probably farcical. That just has not shown up in the data. That people are moving in droves to say cooler Michigan and Wisconsin for those reasons.

Keith Weinhold 31:46

It's just not happening now. Of course, population projections are not delivered from Mount Sinai on stone tablets. Besides births and deaths, the level of future immigration, of course, that's the real wild card here. After the Trump presidency ends by 2029, the next administration that could tighten or loosen the immigration spigot, that could materially reshape the map. But they're probably not going to tighten immigration. I mean, they couldn't because the flow really couldn't be crimped much more than it already is. People love to poke fun at California, but even in 2040, it is expected to barely retain its crown and edge out Texas to still be the most populous state: 39 million versus 38 million, respectively, for California and Texas by 2040. But yeah, Texas and Florida-they are the real stories here, and why droves of people are attracted there for cheaper housing, jobs, warm weather, a business-friendly environment, and Texas and Florida are also places where builders can still build without completing some side quest worthy of a video game with all their permits and regulations and roadblocks. You're largely free of those things in Texas and Florida. Now there are two more important factors to keep in mind here. Some bigger picture context. I've talked before about how the overall American mobility rate is down, and this is a long, long trend. Decade after decade, fewer people move and more people stay put, which is contrary to popular belief. This lower mobility rate, and another factor that gives you perspective is that as real estate investors, we know all this stuff I've been talking about here. These population changes-they only look at the demand side. The supply side matters just as much, despite their slower population growth. Northeast and Midwest states build less new inventory, and that is why Northeastern and Midwestern housing prices and rents are still growing faster today than they are in the Sun Belt, despite all of those Sun Belt construction cranes. You know, too many construction cranes. It looks bullish, and it actually is, but it spikes supply and it suppresses prices. And really, the bottom line here with American population growth from now until 2040 is follow the people, but count the rooftops. Population growth creates housing demand, while limited construction creates scarcity.

Keith Weinhold 34:46

The best opportunities often emerge where those two forces collide. That's what you really want to look for: demand and scarcity. Now, the apartment space. We all know that's been beleaguered for about three or four years, ever since higher mortgage rates set in and high construction levels conspired to keep apartment rents suppressed. In fact, multifamily construction had a peak in this cycle during 2024. That's when 600,000 units were built back in 2024. That was the most new apartment supply since 1986. That is when Cheers, MacGyver, and Miami Vice were on television. Run DMC was on urban radio. MTV was a dominant cultural force, the most new apartment supply since 1986. That's when kids were playing with GI Joe's, He-Man, and My Little Pony. For adults, fashion-wise, they were wearing enough shoulder padding to survive a minor collision. So, lots of new apartment supply to get absorbed. It is getting more and more absorbed. There are more signs there now because the national median apartment rent has now increased for seven months in a row. That's according to Apartment List. Also, the apartment vacancy rate has dropped for six straight months, and do you have any idea what the national apartment vacancy rate is? It has dropped down to now 7.1% Inevitably, overbuilt apartments will be absorbed with a growing population. Lots of great episodes coming up here on the show, where you might be in for a surprise next week. A renowned macro economist will be here on the show with us. I think we all know that in 1971, the U.S. had a lot of economic changes. That's when Nixon completely eliminated us from the gold standard, and the economic system shifted from capitalism to creditism back then. Well, now we appear to be leaving creditism and entering a new economic phase. This could be seismic. Next week here on the show, he'll reveal what the new era is called and how you need to prepare for it, that's next week here on episode 623. If you haven't yet, be sure to hit the follow button or subscribe button on your podcatcher so that you don't miss it.

Keith Weinhold 37:31

Again, if you like what you hear here each week, the GRE "Don't Quit Your Daydream" letter gives you the sharpest ideas of the week in about three or four quick hitting minutes, you'll get surprising housing data, wealth building strategies, timely opportunities, news that a lot of times you can't get anywhere else, and maps and charts that make you say, "Wait, what? It's smart, useful, entertaining, and completely free. Thousands of investors read it every week, and believe it or not, I'm actually more of a writer than a talker. Don't just listen to Get Rich Education, get the letter at greletter.com. That's greletter.com. Until next week, I'm your host Keith Weinhold. Don't quit your daydream.

Speaker 2 38:23

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.

Keith Weinhold 38:51

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