Get Rich Education

#206: Student loan debt vs. real estate investing. Where should you devote your dollars? You get answers.

I tell you how to eliminate investing "uncertainty".

The "BRRRR" real estate investing strategy is discussed - pros and cons. It's a hybrid between flipping and buy-and-hold.

Turnkey vs. BRRRR real estate investing.

I cover the history of mortgages from the 1930s to today. FDR and World War II had substantial impact.

Fannie Mae was born in 1938. Freddie Mac didn't begin tracking mortgage rates until 1971.

2000 was the last year that mortgage rates (30-year FRMs) exceeded 8%.

The median 30-year mortgage rate since 1971 is 7.7%.

Let's meet in-person at the New Orleans Investment Conference.

__________________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

__________________

Listen to this week's show and learn:

02:13 Student loan debt vs. real estate investing.

07:53 The BRRRR Strategy: pros and cons.

17:00 Turnkey vs. BRRRR real estate investing.

19:44 History of mortgages: 1930s to today.

26:33 The median 30-year mortgage rate since 1971 is 7.7%.

28:56 Let's meet in-person at the New Orleans Investment Conference.

Resources Mentioned:

New Orleans Investment Conference

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Turnkey RE: NoradaRealEstate.com

QRP: TotalControlFinancial.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

#205: A dollar is not money. Money serves three purposes. It is a:

#1: Medium Of Exchange

#2: Unit Of Account

#3: Store Of Value

There is an opportunity for you to invest in cash-flowing real estate in Cleveland (link).

After discussing the roles of money, currency, and real assets, we discuss the Cleveland, Ohio real estate investing market.

Generally, if a place is too desirable to live in, it is a bad place to invest in long-term rental real estate for cash flow. But it must be attractive enough to retain residents.

Cities must reinvent themselves when manufacturing wanes. Cleveland has doubled-down on medical technology and has become a world leader in health care.

Eight Fortune 500 companies are headquartered here. The Cleveland Clinic is a world health care leader.

Neighborhood selection, pockets for long-term appreciation and cash flow discussed.

Typical in Cleveland: 3 BR / 2 BA, $700 - $1,000 rent, $80,000 price, 2% property tax.

This provider: financing-friendly, in-house management, guarantees, annual inspection, give tours.

__________________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

__________________

Listen to this week's show and learn:

02:06 Money and currency roles.

04:08 Real assets.

05:53 "Too desirable" to live in a place.

10:18 Medical and technology replaces manufacturing.

11:00 Why companies are spending more to renovate homes.

16:24 Cleveland culture.

19:12 Fortune 500 companies - eight headquartered in Cleveland.

21:49 Forbes named Cleveland the top cash-flowing rental market.

24:22 Why SFHs?

29:58 Typical: 3 BR / 2 BA, $700 - $1,000 rent, 2% property tax.

32:04 Provider, financing-friendly, in-house management, guarantee, annual inspection.

35:45 Interested? Get the investing report at www.GetRichEducation.com/Cleveland.

Resources Mentioned:

GetRichEducation.com/Cleveland

The Real Estate Guys

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Turnkey RE: NoradaRealEstate.com

QRP: TotalControlFinancial.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

#204: Your real estate ROI could be a billion dollars.

Even if your property never appreciates nor pays you the other four ways, I discuss a little-considered way where you're STILL profiting.

Real estate price and value are different.

"Return ON Equity" vs. "Return FROM Equity" discussed.

Are you leveraging appreciation or leveraging inflation?

Inflation assists leveraged real estate investors 3 ways: asset inflation, debt debasement, and higher cash flows.

Real estate flipping vs. investing is discussed with Matt Theriault.

Matt and I discuss the mindsets around passive income vs. active income.

The importance of markets and teams.

__________________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

__________________

Listen to this week's show and learn:

02:13 Your ROI.

03:54 If your property never appreciates or pays you, here's how you profit.

07:08 Leveraging inflation, not appreciation.

13:10 Cleveland cash-flowing property.

15:33 Matt Theriault joins us.

22:25 Retirement. Piles vs. streams of income.

29:12 Flipping vs. Investing.

31:08 Markets and teams.

35:42 You must act.

Resources Mentioned:

Warren Buffett Quote

Matt Theriault Website

Cleveland Turnkey Real Estate

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Turnkey RE: NoradaRealEstate.com

QRP: TotalControlFinancial.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

#203: Doctors' debt is $200K-$600K+ after medical school. Should they pay it off or invest in real estate instead?

Most view doctors as "successful" - they help people and earn more than most.

Dr. Buck Joffrey joins us. Are doctors "too academic" to be concerned with investing? They miss out.

Get his great Wealth Formula Roadmap Course.

Young doctors often ask veteran doctors what to do with their money. They get referred to a typical financial advisor.

"The Rule Of 72" is misleading. Mutual fund investors often make zero return.

It is impossible to build substantial wealth without (good) debt. That is, debt that's outsourced to others, like tenants.

I give a concrete example of how debt creates wealth for you with a $1M building where you make a small down payment.

Inflation dilutes the weight of your debt.

Wealth Formula = Mass x Velocity x Debt

Dr. Joffrey's first apartment building was bought based on "a promise" - a pro forma on a Class D building. It was awful.

_______________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

_______________

Listen to this week's show and learn:

02:10 My chat with a new medical doctor and his $450K debt.

06:00 Dr. Buck Joffrey interview begins.

09:05 Are doctors "too academic" to be concerned with investing? They miss out.

12:15 When you have a Dad that's in real estate investing.

14:35 "The Rule Of 72".

16:43 Flawed conventional wisdom.

20:00 Debt.

24:58 Inflation-profiting from debt.

28:39 The mathematical wealth formula.

30:13 Dr. Joffrey's first apartment building was a loser.

31:50 Wealth Formula podcast.

33:47 Dr. Buck Joffrey's video course: Wealth Formula Roadmap.

Resources Mentioned:

Video Course: Wealth Formula Roadmap

Book: Cashflow Quadrant

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Turnkey RE: NoradaRealEstate.com

QRP: TotalControlFinancial.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

#202: $108,000 was my highest salary from my day job. I discuss.

There's high housing demand and low supply. Then why are homebuilders slowing down? You get answers.

SFHs comprise 30-35% of all U.S. rentals. 90% of rental SFHs are owned by "mom & pops".

Learn how to exploit real estate's geographic arbitrage.

How are you living? Metaphorically, are you using water buckets or a sprinkler system?

Meet me in-person at the New Orleans Investment Conference, Nov. 1st to 4th.

I made an infographic to send you: "The 5 Ways Real Estate Investors Get Paid".

_______________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

Listen to this week's show and learn:

02:12 Supply vs. Demand and "Capacity To Pay".

03:59 Homebuilding slowdown.

10:40 SFHs comprise 30-35% of all rentals. 90% of rental SFHs are owned by "mom & pops".

13:02 Geographic arbitrage.

16:39 Water Buckets vs. Sprinkler Systems.

19:06 Security vs. Freedom.

23:48 Meet me in-person in at the New Orleans Investment Conference, Nov. 1 - 4th: https://goldnewsletter.com/wp-content/uploads/2018/07/NOIC_2018_GRE.html

27:32 Infographic: "5 Ways Real Estate Investors Get Paid."

Resources Mentioned:

Reuters: Home Sales Sag, Prices Rise

Meet Me In New Orleans, Nov. 1st - 4th

Book: "How To Be In The Top 1%"

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Turnkey RE: NoradaRealEstate.com

QRP: TotalControlFinancial.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

#201: Your down payment, credit score, reserves, debt-to-income ratio necessary for an income property loan are discussed.

Ridge Lending Group President and CEO, Caeli Ridge, also tells you 15% of appraisals come in low, 80% right on, and 5% above the contract sale price.

Can a bank call your mortgage loan payment due-in-full anytime? Short answer is "no". We discuss.

Learn some good options after your first 10 loans (single) or 20 (married) are exhausted.

We discuss the effect of higher mortgage interest rates on your cash flow.

HELOC interest is not always tax deductible. Be mindful that Trump doubled the standard tax deduction threshold.

_______________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

Listen to this week's show and learn:

02:58 Receiving sale price discounts for paying cash rather than financing property.

08:48 Two sets of underwriting guidelines: loan spots 1-6, loan spots 7-10.

18:40 Can a bank call your loan due-in-full anytime?

22:50 Max. LTVs on cash-out refis.

26:56 Portfolio financing beyond ten loans: 6.375% interest rate.

31:00 Higher interest rates than last year.

33:27 Appraisals.

36:26 Underwriting guidelines: too loose or too tight today?

39:15 Phone 855-74-RIDGE | www.RidgeLendingGroup.com | [email protected]

40:23 HELOCs on income property: difficult to find, 65% LTV.

41:27 Tax-deductible interest, standard deduction threshold.

Resources Mentioned:

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Turnkey RE: NoradaRealEstate.com

QRP: TotalControlFinancial.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

#200: Discover your "why" in life and real estate.

You should have a selfish why and an altruistic why in real estate investing.

I summarize today's economy and asset values: GDP growth, real estate, stocks, interest rates, cryptocurrency, oil, dollar, precious metals, The Fed.

As a Forbes writer, I'm going on offense, not defense.

You hear the audio clip: "7 Minutes To A Wealthy Mindset".

Enjoy this milestone 200th Episode - the Bicentennial Installment of GRE!

_______________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

Listen to this week's show and learn:

00:52 Up and down market cycles.

02:02 You live a great life.

04:33 Your "why".

10:02 Why I'll never paint a wall or mow a lawn again.

14:58 Programming changes.

16:07 Today's economy, GDP, asset values.

25:12 At Forbes, I'm going on offense, not defense.

26:52 Audio clip: "7 Minutes To A Wealthy Mindset" video.

Resources Mentioned:

Videos: GetRichEducation.tv

My Forbes article: Home Equity

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Apartment Investor Mastery: BradSumrok.com

Turnkey RE: NoradaRealEstate.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

Education: GetRichEducation.com

#199: He thought this show was dumb, debt was bad.

He originally listened to laugh rather than for financial education.

In 2009, Get Rich Education (GRE) listener Dustin Jones suffered a personal bankruptcy as a result of high real estate commercial debt tied to properties with declining value.

His goal was to be debt-free by age 40.

In 2015, that all changed when he began listening to Get Rich Education.

He learned that financially-free beats debt-free.

Now Dustin embraces debt again by strategically turning equity into cash flow.

He has $781,000 in debt, and hopes to have $1.1M to $1.2M by year-end. Isn't that counterintuitive?

It's a fascinating story of tragedy, resilience, learning, strength, and self-belief with remarkable Michigan-based GRE listener Dustin Jones.

_______________

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

Listen to this week's show and learn:

03:47 Building a real estate portfolio in Flint, MI.

05:48 Declining property values and rent incomes.

08:46 Bankruptcies.

09:36 Calling notes due generally doesn't happen on performing, residential loans.

12:52 Dustin thought debt was dumb.

13:56 Finding GRE in 2015 and laughing at how it first sounded like nonsense.

19:00 Applying abundant concepts.

21:33 Buying 5 properties in Houston, Memphis, and Montgomery. $1,250 cash flow.

25:46 Dustin's other investments.

27:47 Pitfalls with providers, inspections.

32:28 Meet Dustin and I in-person Sept. 6th to 9th! Learn more at: www.GetRichEducation.com/Belize.

Resources Mentioned:

Dustin's e-mail: [email protected]

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Apartment Investor Mastery: BradSumrok.com

Turnkey RE: NoradaRealEstate.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

Education: GetRichEducation.com

#198: The five ways real estate pays you, your monthly cash flow and using HELOCs are three listener questions that I answer today.

Home inventory is so low that machine learning and artificial intelligence are being used to predict when someone is likely to sell.

ATTOM Data's Daren Blomquist tells us where today's housing values are compared to pre-recession peaks.

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

Listen to this week's show and learn:

00:57 How would $1,500 monthly cash flow help me?

04:00 The "5 Ways" real estate pays you.

06:40 HELOCs.

26:16 Daren Blomquist interview begins.

29:00 Machine learning, artificial intelligence in real estate.

35:00 Higher mortgage interest rates = higher home prices.

38:18 National median housing prices vs. "pre-crash" highs.

40:30 Housing values in "stable" markets.

43:38 Get Rich Education TV.

Resources Mentioned:

www.attomdata.com

Get Rich Education TV: GetRichEducation.tv

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Apartment Investor Mastery: BradSumrok.com

Turnkey RE: NoradaRealEstate.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

Education: GetRichEducation.com

Hey, welcome in to Get Rich Education, Episode 198. I'm your host Keith Weinhold and I'm going to answer a few listener questions today…

...about your cash flow, your total rate of return, and finally, Home Equity Lines Of Credit. Then we're going to have one of the top real estate trend trackers in the nation join us here later.

Let's get right into it. Ellis from Gastonia, North Carolina asks,

"Keith, Episode 188 had a great breakdown of how run you all of the numbers on an income property. The thing I'm wondering about is that your example only resulted in a positive cash flow of $150 on that property.

With the maximum of 10 conforming loans that we can get, that's only $1,500 in monthly cash flow. How would that be enough for us to leave our job?" Thanks, Ellis.

And, of course, not everyone that listens here wants to have their passive real estate income replace their passive job income. Though many do.

...and it's not a get rich quick thing...it's about incrementally building up durable cash flow streams over years.

Well, Ellis, and I'm not sure how many shows you've listened to.

That example of the $150 cash flow was just for one SFH - and really for one of the lower-cost ones - the purchase price on that was 70-some thousand dollars. It was in Memphis.

So most of the income properties you buy will have a higher purchase price, higher figures, and often a higher cash flow.

Really, $1,500 with ten properties would be about as low as a projected number could possibly get.

So Ellis, if you're married, both you and your spouse - you each qualify for 10 one-to-four unit properties...20 total and BTW…

...you want to put those in your individual names. If both you and your wife were on the loan, that would count as a strike against each of your limit of 10, so as you buy, alternate back-and-forth - you own the first one, she owns the second, you own the third, and so on, or something like that.

So that's 20 doors minimum there - or I guess 19 since your primary residence is part of that formula, plus if you have some duplexes or four-plexes in there, that might be 25 or 30 or 40 doors.

So, there's so many reasons why you would likely have substantially more than $1,500 in passive monthly cash flow.

Then there are financing programs beyond conventional ones, you might also have some 5+ unit apartment buildings, some agricultural parcels or a mobile home community, or maybe you even got a couple low-cost properties paid-off and don't think it's worth getting a loan for tiny amounts, so they produce cash flow although there's no loan there…

...there are a ton of reasons why it would be way more than $1,500. Thank you for the question, Ellis.

...And another important thing to remember there is that we're only talking about cash flow - which is only one of five simultaneous profit centers that you typically have.

But cash flow is a key profit center because it's the most liquid one.

Jessy from Sacramento, CA says, I love your show. It's flipped my financial mindset totally upside-down, changed my family's life, and changed what I thought was possible for us.

Part of what I love hearing about is that 5 Ways You're Paid in real estate. Ah - then he (or she?) shows me an example here in the question of 30% for leveraged appreciation + 6% cash flow , 5% loan paydown, 4% tax benefits, 3% inflation-hedging = a total return of 48%.

Yes, those are the five ways that real estate investors often have as profit centers.

The question Jessy asks about this is: "Though I get my properties from GREturnkey.com and these returns seem about right, I don't think I'm invested in any one market that performs this way."

OK, I love that question, Jessy. Few individual markets are going to perform just that way.

It's a blended portfolio approach. For example, on your new purchase in Dallas-Fort Worth, you might not have any cash flow any more. It might be cash flow zero. That's just the way DFW behaves now.

But it's likely that you've been achieving better than 6% appreciation there in DFW (and I'm referencing that 6% appreciation at 5:1 leverage as the 30% Jessy gave in the example).

Then if you've also bought in Memphis, you're likely achieving less-than-average appreciation - that's just how many areas in Memphis behave, but you're getting above-average cash flow.

So it's the blended portfolio approach that can lead to "Year One" returns like what I've described with the "Five Ways That You're Paid". Multiple markets means you're more diversified at the same time.

One market, however, that's performed lately with a nearly equal measure of both appreciation and cash flow are some of the Orlando and Tampa Bay submarkets...so some markets will come close - most won't - they'll be weighted differently across your five profit centers.

Thanks for the question, Jessy.

The next question comes from Michael in Astoria, Oregon. Astoria is beautiful. One day, I went to the top of the Astoria column there - it's a tower overlooking the mouth of the Columbia River.

Michael says, "There aren't any cash flow markets out here on the west coast and we have substantial equity in our $1 million Astoria home.

We still owe $504,000 on the loan so it's about half-paid off.

From listening to you and understanding that the Return From Home Equity is always zero, I also know that our leverage ratio has been cut to 2-to-1.

What's the best way of removing our home equity to use for down payments on cash-flowing income property?"

Well, thanks for the question, Michael. First of all, you need to decide for yourself that that's what you want to do with your home equity.

Understand that doing so means that none of your equity is lost - it is merely transferred into multiple properties - and it also can produce a cash flow for you now.

Of course, though the return from home equity is always zero, borrowing against your home equity incurs an interest rate expense that you need to beat.

I've removed equity from my property with a HELOC for buying more investment property...and let's drill down and unpackage a HELOC here - H.e.l.o.c. - Home Equity Line Of Credit.

Let's talk about why you would use one, how it works, and both your advantages and your risks here, Michael.

With a HELOC - if you understand how a CC works, you largely understand how a HELOC works, except your credit limit is based on how much equity you have in your home. You can usually borrow up to an 80% combined LTV ratio.

So what's 80% combined LTV really mean?

Now with your home, let's just round your million-dollar home's mortgage loan balance to 500K. This means that you could potentially borrow up to $800K total - you've already got a $500K lien on the property, meaning you could get a HELOC for another $300K.

Yes, with $300K, you could potentially put $30K into ten low-cost income properties in the Midwest and South - down payment & closing costs. Now you've spread your risk around because you're invested in multiple RE markets.

Now to qualify for a HELOC, you'll need to document your income and employment status just like you would if you were refinancing your home, Michael.

People often use HELOCs for home repairs, sometimes they're used to pay down higher interest rate CCs. But you can use the funds for anything - a trip to France, a new fishing boat.

The HELOC is essentially a second mortgage for you.

Like a credit card, homeowners can borrow or draw money on multiple occasions, usually for a period of 5-10 years, and up to a maximum amount - it would be $300K for you in this case, Michael.

There are two time phases with a HELOC. The first one is your Draw Period, which typically lasts 5-10 years.

The second one is your Repayment Period - which can last about 10 years, maybe even up to 20 years.

Now the first one, your HELOC Draw Period is a really nice time. Now you've got access to $300K, and you only need to make interest-only payments on it - which means you have flexibility - you can make principal payments on it if you want, but you only need to pay the interest portion monthly.

And your HELOC balance can be very elastic - like a credit card - you could just borrow out $150K on your $300K line right away, make extra principal payments to get it down to $120K after a few months, then months later, run it all the way up to the limit of $300K, and years later pay it back down to "0" again.

It's a pretty great time for you - you're enjoying what feels like a windfall of cash and you only need to make the interest-only payments.

But after this 5-10 year Draw period, the second of your two HELOC time phases begins - your Repayment Period.

Now, this can be a real test of how responsible you've been with your HELOC funds during your Draw Period - because during this repayment period which can last 10 to 20 years, you must pay both the interest and the principal amount - so your required minimum payment will be higher over all these months until you pay the HELOC balance back down to zero.

Usually, the repayment amount is calculated by dividing the capital you've accessed - call it $300K here - by the number of months in your repayment period. Simple math here.

Now, before you originate your HELOC - beware - occasionally, a lender requires your capital to be fully repaid at the end of your 5-10 Drawdown period all in one lump sum - which is known as a balloon payment.

So before you take out a HELOC, just ask your mortgage loan officer about the duration of your Repayment Period once your Draw period ends, ensuring that there's no balloon due.

Now, even if you do have a 10-20 year repayment period, some borrowers still get surprised at the higher payment during the repayment period - but you won't be - you've got to pay both principal and interest there. Your required payment will increase then.

Now, here's a great option for you. Of course once your 5-10 year Draw Period ends, maybe you want to keep your line of credit and extend the draw period.

Many lenders will do this for you, so long as your home still has enough equity and your financial health hasn't tanked.

Typically, a lender will "pay off" your old line of credit by simply extending you a new one.

Now that you understand Draw Periods and Repayment Periods, let's talk about your HELOC's interest rate.

HELOCs have substantially lower interest rates than CCs. HELOC interest is often tax deductible - CCs are not.

Your interest rate floats. It's not fixed. HELOC interest rates are tied to Prime Rate or LIBOR plus a margin above that which is based on your credit score.

Your upfront HELOC costs low, Michael. A $300K HELOC cost might only be a $1K upfront cost.

Now, let's talk about some risks associated with using your primary residence's equity for purchasing rental property.

If you have a habit of abusing credit, maybe avoid a HELOC altogether.

Since a HELOC is secured by your home equity, if you don't repay it, you could end up in foreclosure. The same of which can be said for most any mortgage.

Let me tell you about something bad and unforeseen that happened to me with a HELOC in about 2007 or 2008….and by the way, lending guidelines were so loose then that I actually had a 90% LTV HELOC on a non owner-occupied four-plex.

If you can believe that!

But it's not like that today, so with your HELOC based on 80% LTV on your primary residence, say, Michael, that you're in a place during your draw period a couple years down the road and say you've borrowed $150K of your $300K HELOC.

You've got half of it in use.

Here's what happened to me, just using your numbers to stick with your example - I got a notice from the bank telling me, essentially that they froze my HELOC.

What did freezing my HELOC mean? It meant that even though I was still in my Draw Period, they wouldn't let me draw further equity from my home - it was frozen at $150K.

Now, they didn't call the note due or demand any principal payments.

I could still make interest-only payments on the $150K, but with no further drawdowns. There was another $150K that remained unutilized.

...and why was that? Well, a lot of unprecedented things happened during the Great Recession of 2007 to 2009.

Even though the property I owned didn't fall in value all that much ten years ago, when housing values started turning down nationally 10-12 years ago, many banks said that you can't make any further draws on your HELOC - we're freezing it - essentially the banks were saying that we're worried about the value of your collateral that secures this loan that we made to you.

Well, I was disappointed because I still had some open funds to use on my HELOC, but access was shut off for quite a while. That was the HELOC freeze.

Now, I could have avoided that had I just taken all the money out of the HELOC and put it in my own liquid bank account. Of course, I would have had to pay interest on a lump that I wasn't investing too.

Let me just add here, that whomever you listen to for finance and real estate investing information and education, listen to someone that been through a downturn.

I've been successfully investing in real estate directly since 2002, and the housing crisis and mortgage meltdown of 2007 to 2009 was actually good for me - as I've discussed on other shows.

Now, for you to get a gain - your HELOC interest rate that you're paying should be the same as, or lower than, the cash-on-cash return of the income property that you're buying with the HELOC funds.

That's because it's cash that you service the I/O HELOC payments with - and you're really keeping an eye on that when your Draw Period comes to an end.

Remember that HELOC rates have been rising and they're poised to keep rising.

Now, I already know what you're thinking. You're excited about real estate investing and building your portfolio and if you have some equity in your home, you might even be thinking something like:

"Even if my income property's CCR ends up lower than my home's HELOC interest rate, it's all going to work out for me because when I consider that the income property pays me 5 ways (of which the CCR is only one of those five), my Total Rate Of Return will dwarf the smaller HELOC interest rate.

I know you might be thinking that. And you know what, you might even end up being right and it will work out for you, but now you're tilting into a riskier area.

And you're going to do whatever you're going to do….

...but the Mortgage Meltdown ten years ago proved to me that liquid cash flow is what services HELOC payments.

The other four ways you're often paid - appreciation, loan paydown paid by the tenant, tax benefits, and inflation-hedging - none of those profit centers are liquid.

By the way, and thanks for the question Michael -

Now, I've had some detractors in the debt-free School Of Thought that won't even entertain the notion of harvesting equity from their own home and buying rental property with it.

But I do it...and I'm not telling you to do it...I'm saying make your own decision. But some even say things like - I bet you won't like your decision when we have another mortgage meltdown like we did ten years ago.

My response is - this way, I'm better positioned in a mortgage meltdown. During the Housing Crisis, some markets even lost 50, even 60% of their housing values.

In a meltdown, I'm going to be really happy that I didn't have a lump of equity all in one property just in one market.

Plus, during all that time leading up to a potential future meltdown, I will have had positive cash flow the entire time.

I've even had a couple people - that just don't ever seem to want to think abundantly say - well what if things go beyond a recession and we're in an all-out depression and everyone loses their job and Americans are massively starved for food.

Then the person that rents your Kansas City property won't have their medical job to pay your rent anymore, and the Fedex employee in Memphis that rents your place won't have a job and your cash flow will dry up.

Sheesh, if we're in an all-out Depression, and the economy breaks down, no one accepts the dollar, and there's anarchy and mass starvation and looting and Americans don't even have clean water and everyone's defaulted on every loan they have, then the fact that you lost the cash flow on your St. Louis rental property is not even going to be one of your Top 20 problems.

So...I don't know what these people are thinking. Now...

When you're running your numbers on a single-family income property that you're thinking about buying and you get a CCR greater than 10%, you know, these days. I want you to look at that CCR with a magnifying glass.

Many markets have prices rising faster than rents that can keep up proportionally. You can still get 10% on a SFH, but not as easily as before.

And I still don't know of a better place to invest right now than SF income property.

And I don't think we're in any kind of housing "bubble" now.

A bubble is defined as a price level unsupported by fundamentals. Today, supply shortage is driving demand.

Therefore, it is very much still a fundamental price increase, not a bubble - in these stable inland markets where we buy homes a little below the median housing value.

So...know the pros and cons of strategic investment moves like a HELOC origination.

Your goal, as a successful investor, is to maximize your ROI throughout your investing lifetime.

I frequently sell or refinance properties due to that fact that equity-heavy properties decrease your ROE - your Return On Equity.

Financially-free beats debt-free. The debt-free person asks a question like "Where do I think I can be someday?"

The financially-free person instead asked themself a better question - what do I have right now to make my & my family's life better now - what tool do I have that I didn't even know I had.

What knowledge do I have now, what talent do I have now, what property equity do I have now, what relationships do I have now.

So...thanks for the listener questions today. I only got to three. There is such a backlog of questions that I've got.

I wanted to answer three that I felt would be most applicable to the greatest number of people.

Well, ATTOM Data's Senior VP Daren Blomquist is back with us today.

• We're going to discuss how among homeowners - they're staying in their homes longer than before - but renters are not included in this - so note that this isn't a direct measure of transiency.

There are so many reasons for why homeowners are staying put longer

• Low interest rates that they locked in years ago often means they don't want to leave.
• Mortgage underwriting standards are tougher than they were pre-recession.
• The supply of replacement properties is low.
• To a lesser degree - our population aging - the older one gets, the less they move.
• The supply problem is getting so bad that people increasingly are using data sets of predictive analytics and Artificial Intelligence to tell if someone is about to sell their home.

All that's next, plus where the more undervalued Midwest & South housing markets are for income property today. You're listening to Get Rich Education.

______________

For those figures Daren was using in comparing various metro housing market prices to their pre-recession peaks, those numbers are not adjusted for inflation. Keep that in mind.

So if over the last decade we had a cumulative 30% inflation over all those years, then a housing price that's 30% greater is essentially the same. Very important distinction there.

Thanks again to Daren Blomquist.

I know that you're a Get Rich Education listener, but are you a Get Rich Education watcher? Get Rich Education TV is developing.

Understand that a lot of changes are taking place there as it's just evolving.

If you want free education, motivation and tutorial videos from me - just go to GetRichEducation.tv for more.

Let me know what you think about Get Rich Education TV. Land there directly at GetRichEducation.tv.

Until next week, I'm your host, Keith Weinhold. Don't Quit Your Day Dream!

#197: I dislike 401(k)s. They REDUCE your income. Sound investments INCREASE your income.

Most people simply do not realize that there are alternatives to "defined contribution" retirement plans like 401(k)s, 403(b)s, 457s, IRAs, and Canadian RRSPs.

Societal belief systems condition you into "Salary Reduction Plans" - which is, in fact, an early name of the 401(k)!

The man credited as the "Father" and "Inventor" of the 401(k), Ted Benna, joins us today.

He created and gained IRS approval of the first 401(k) savings plan.

Even Ted laments that they should be "blown up". They are not serving participants in the way they were intended.

Ted & I discuss alternatives to 401(k)s.

Personally, I don't invest in 401(k)s. Admittedly, I used to, succumbing to poor financial education and societal conditioning.

They're not designed to begin paying you until between age 59.5 and 70.5. That's a "life deferral plan" - awful.

Want more wealth?

1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book

2) Actionable turnkey real estate investing opportunity: GREturnkey.com

3) Read my best-selling paperback: getbook.at/7moneymyths

Listen to this week's show and learn:

02:09 What exactly is wrong with a 401(k).

06:45 Replace your "Salary Reduction Plan" with a "Salary Increase Plan".

08:02 Similar plans like 403(b), 457, IRA, Canadian RRSP.

09:30 Ted Benna Interview begins. 1980 roots.

12:45 Reducing employee wages.

13:37 Benefits and drawbacks of 401(k)s.

18:51 Fees.

25:43 Why 401(k)s should be "blown up".

32:02 Comparing "Get Rich Education" vs. "401(k)".

34:44 What does Ted Benna do today?

36:01 My summary.

Resources Mentioned:

Ted Benna's website: Benna401k.com

Ted's charity interest: Compassion.com

Mortgage Loans: RidgeLendingGroup.com

Cash Flow Banking: ProducersWealth.com

Apartment Investor Mastery: BradSumrok.com

Turnkey RE: NoradaRealEstate.com

Find Properties: GREturnkey.com

GRE Book: GetRichEducation.com/Book

Education: GetRichEducation.com