Get Rich Education 445: Your Questions Answered: Overleveraged, House Hack vs. Turnkey, Hyperinflation
Keith Weinhold answers listener questions about real estate investing.
He advises listeners on how many properties they need to own to become a millionaire, how to invest $40,000 to reach a $100,000 down payment for a rental property, and how to find the best future real estate markets.
Keith emphasizes the importance of positive cash flow, avoiding over-leveraging, and owning properties in multiple job growth markets and states.
He also discusses the potential for hyperinflation and the benefits of owning real assets to combat inflation.
Keith encourages listeners to leave a rating and review for the podcast and consult with professionals for individualized advice.
**Taylor's question [00:01:07]**
How many properties must I own to become a millionaire? Keith explains that it depends on the profitability of the properties, how much they go up in value, and how much rent is charged.
**Mitrel's question [00:05:04]**
Should I invest my $40,000 in the stock market to reach my $100,000 down payment goal for a rental property? Keith advises on risk tolerance and suggests alternative options such as I bonds.
**Kevin's question [00:09:08]**
What are the forward-looking indicators to find the best future real estate markets? Keith talks about the prospect of hyperinflation and provides insights on finding the best real estate markets.
**Forward Looking Indicators for Real Estate Markets [00:09:16]**
Keith answers Kevin's question about selecting MSAs with forward-looking indicators, including population growth, employment, and upcoming government infrastructure projects.
**Sponsor Ads [00:15:45]**
Keith thanks Ridge Lending Group, JWB Real Estate Capital, and Mid-South Home Buyers for sponsoring the show.
**House Hacking in Southern California [00:18:03]**
Keith advises Connor on whether to invest in an out-of-state rental or house hack in Southern California, considering high real estate prices, tax rates, and tenant protection laws.
**Real Estate Financing Options [00:19:03]**
Keith discusses financing options for single-family homes and fourplexes, including FHA and VA loans, and the advantages and disadvantages of house hacking in Southern California versus investing out-of-state.
**Hyperinflation and the US Economy [00:21:40]**
Keith addresses a listener's question about the possibility of hyperinflation in the US economy, defining hyperinflation and discussing the factors that contribute to it, including a nation's debt and foreign demand for its currency.
**Leverage in Real Estate Investing [00:25:00]**
Keith answers a listener's question about being over-leveraged in real estate investing, explaining the risks of taking on too much debt and emphasizing the importance of buying properties that are cash flow positive.
**Real Estate Investing Strategies [00:28:00]**
Keith explains how to avoid over-leveraging and how to project positive cash flow from day one.
**Benefits of High Leverage [00:29:09]**
Keith explains how high leverage can help you build wealth faster and why it's best to finance your properties.
**Encouragement to Leave a Podcast Review [00:30:07]**
Keith encourages listeners to leave a podcast review and explains how it helps the show reach more people.
**Disclaimer [00:31:32]**
A disclaimer is given that nothing on the show should be considered specific personal or professional advice.
Resources mentioned:
Show Notes:
I-Bonds:
https://www.treasurydirect.gov/savings-bonds/i-bonds/
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Welcome to GRE! I’m your host, Keith Weinhold. I answer your listener questions today.
A 12-year-old listener asks, how many properties must I own to become a millionaire?
Another asks, “Should my first property be a house hack or an out-of-state rental”?
One question is about the imminent prospect of HYPERinflation.
Also, “What are FORWARD-looking indicators to find the best future RE markets?” Those questions and more questions all answered, today, on Get Rich Education!
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Hey, welcome in to GRE. I’m your host and Founder, in fact, of this very show… and all Get Rich Education platforms, a 20-year REI and Active Member of the Forbes Real Estate Council. My name is Keith Weinhold. Ya probably know that by now.
This is Episode 445 of Get Rich Education.
When I do these listener question episodes, I generally begin with some of the more basic questions.
Today’s first question comes from Taylor in Wooster, Ohio. Taylor is age 12 and he simply asks:
How many properties must I own to become a millionaire?
Well, thanks for that, Taylor. I don’t often get questions from a 12-year-old.
I love that you’re listening and the fact that you ARE greatly increases the chances of you building wealth when you’re an adult, yet young enough to enjoy it.
Like a lot of questions in real estate, the answer to how many properties you must own to become a millionaire “depends”.
It depends on how profitable your properties are - how much they go up in value and how much you’re getting from the rents that you charge the tenants, how long you do a good job of keeping them as tenants, as well as how capable you are of controlling your property’s expenses.
So, you could own as little as just ONE property and be a millionaire, Taylor.
Owning MORE properties is better than owning fewer properties. That way, if you have one that isn’t profitable, you’ll have profits from your others.
And you can own more properties when you can use part of your OWN money & part the bank’s money… in owning the property.
Now, Taylor, if you have one million dollars, say, you had a million bucks in stacks stuffed in your closet, you need to understand that that is not enough.
You’re 12 years old now. You might live another 80 years. Then you’d need that million to last you 80 years.
Even a 50-year-old with a million dollar stack of dollars bills in their closet would not have enough money to live on for the rest of their life.
You might need closer to 10 million dollars. That’s called a decamillionaire. So think about setting your net worth target higher. Think, “How can I be a decamillionaire?”
But actually, you don’t just want to think about the height of your stack of dollar bills reaching any certain number of millions ONLY. It matters. But what matters more is how fast your stacks are GROWING.
That’s called cash flow. If your stacks are growing at a rate every year that exceeds all of your expenses, you are financially-free. That’s why it beats being debt-free.
Another thing, Taylor, I know that your hometown of Wooster, Ohio is between Columbus and Akron so - though I’m not familiar with Wooster - but I do know its the county seat of Wayne County -
…you do tend to have markets nearby that can create CF really well - that’s that ability to GROW your cash stacks, hopefully to a height of 10 million someday.
Thanks for your question, Taylor.
You know, it warms my heart to know that kids listen to the show. I remember shortly after launching the show in 2014 that a Dad & son from New Jersey wrote in and told us that they look forward to listening to the show together every week.
I like to do that family-friendly show, from Day 1. A clean lyrics show since inception.
I like to keep it classy. I like to make that show that would make my late Grandma Weinhold proud - though I don’t think she ever knew how to listen to this show.
That’s part of my brand… and it warms my heart to see children in the audience.
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The next question comes from Mitrel. I don’t know where Mitrel is from, because some questions come in on our YouTube Channel, but he says…
I have a good job and $40,000 in savings, expect an upcoming BOOM in real estate and need $100,000 for a down payment.
Does it make sense to gamble my $40K in the high risk stock market to get up to the $100K sooner and capitalize on the RE purchase?
If I lose the $40K, I’ll recover it in time with my job anyway over time.
If I win & get it to $100K, I’ll have my income property and be off to the races with leverage and Real Estate Pays 5 Ways.
If I simply tried to preserve the $40K in a savings account, I’d lose to inflation anyway.
That’s his question. Alright, Mitrel. You’ve got $40K, want to get to $100K for your down payment on some rental property.
Now, we have properties at GRE Marketplace where $30 or $35K is enough to get started… but with your $100K down payment goal, I sense that you might have a specific purchase in mind.
Of course, it’s about getting a 20-25% down payment + 4% CCs - as a percent of your purchase price - and you’ll want to hold some reserves.
Well, to get your cash stash from $40K up to $100K, it has to do with your risk tolerance.
It sounds like you’re open to risk with putting it in the stock market short-term to try to reach your goal faster.
So, yeah. You would probably want to do that OUTSIDE of a retirement account since they generally have early withdrawal penalties.
In a savings account, yes, you’re aware that with true inflation, that would just debase your savings’ purchasing power.
If you’re open to risk, I guess one could get in & out of crypto at just the right time - if you do that, I’d choose bitcoin.
But you know, whether you go with risky stocks or risky bitcoin, the problem with that is that you have to get your timing right twice.
Ideally, whether it’s a Russell 2000 Index Fund or Apple Stock or Ethereum, you want to buy close to a near-term low and then sell close to a near-term high.
That is more difficult to do than it sounds, and it’s just one reason that stock, ETF, and mutual fund investors don’t build wealth.
One other thing I’ll mention as you’re trying to patch together your first RE down payment is I-bonds. They currently pay a guaranteed 7%.
The way they work is that the interest rate they pay you is the CPI Inflation rate plus a fixed rate on top of that.
You can get I-bonds at TreasuryDirect.gov
But there is a $10,000 annual limit that you can put into I-bonds.
Another disadvantage is that I bonds can't be purchased and held in a traditional or Roth IRA, Mitrel. The I- bonds have to be held in a taxable account.
But that might work for you in this case, Mitrel, since it’s a shorter-term hold, hopefully it’s shorter-term anyway, until you’ve built up your $100K cash to get your RE and get off to the races, hopefully getting paid 5 ways.
Another disadvantage of I bonds is there is an interest penalty if they’re redeemed for cash in the first five years. They knock off 3 months of your earned interest.
I hope that you found at last one insight on those options that helps you out, Mitrel.
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The next question comes from Kevin. He asked this one quite a while ago.
[Listener question played]
3) What are the forward-looking indicators to select MSAs? He typically looks at population growth and employment.
That is a rather astute question, Kevin. Yes, you’re looking at some of the right measures for the tide that floats a RE market up.
First, we want to think about landlord-friendly states. Yes, the MW & South has a preponderance of them. But there are some outliers. You’ll also find pretty favorable eviction processes for LLs in PA, TX and AZ.
When it comes to forward-looking RE indicators and their sources, first, let me give you two resources that most everyone knows about, then we’ll drill deeper.
The NAR publishes forecasts for home sales, prices, and other market trends. Their reports give you future RE market insight at both the national and local level.
Zillow offers forecasts too on the housing market, including home values, rents, and other market indicators.
Now, one indicator and one place that a lot of people don’t know where to look, Kevin, is your ability to discover upcoming government infrastructure programs.
Think about learning where the next new highway intersection or highway interchange will be built. Or perhaps it’s a new seaport expansion project or a new bridge that is going to be built in 5 years.
There are a lot of places where you can find out that information ahead of time, and unlike stock investing, it’s completely legal - totally alright - to learn about this ahead of time.
Get a heads up on where the next bridge is going to be built and how that can make nearby property values rise - that’s not considered illegal insider information.
You can check the websites of government agencies responsible for upcoming infrastructure development in your target state or region.
That area’s, say, Department Of Transportation makes this public so that contractors can engage in the bidding process for major infrastructure projects. These are known as government PROCUREMENT websites.
For example, in Illinois, that’s under an Illinois.gov website.
Those sources can be kinda wonky & dry, but putting in the work over there can help you see the future.
Now, major news outlets, and just regular, old school, legacy media television channels like good ol’ WPHL in Philadelphia or KMSP Minneapolis or anywhere, they often report on upcoming projects and government initiatives, like an airport expansion.
Now, if you happen to LIVE in an investor-advantaged area, Kevin, well and you do, Dayton, Ohio.
Joining an “in real life” industry association that focuses on infrastructure development can really give you direction & foresight and you’ll grow your network too.
That’ll give you access to upcoming projects - as will attending public meetings like town hall meetings.
And then finally, the US Census Bureau and other sources make all kinds of population projections. That helps you see the future.
And hey, you might as well use the Census’ resources since your tax dollars are paying for it.
And those industry associations and public meetings often use & apply those population projections to upcoming major projects.
So, there’s more, but that’s a good bit there. I hope that helps you, Kevin.
Today, I am bringing you the show from Anchorage, Alaska.
Next week, it’ll be from Las Vegas, Nevada.
And in two weeks, I’ll be bringing you the show from Phoenix, Arizona.
So, Anchorage, Las Vegas, and Phoenix. That is the largest city in the 49th, 36th, and 48th states admitted to the union respectively.
Only a remorseless geography nerd like me would break it down that way, wouldn’t I?
Yes, we’ll be constructing makeshift, mobile GRE recording studios coming up.
If you’ve got a question that you’d like me to answer, go to GetRichEducation.com/Contact. That’s where you can either write a message, or leave a voice message listener question - like Kevin did.
I answer more of your listener questions next. I’m KW. You’re listening to Episode 445 of Get Rich Education.
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Welcome back to Get Rich Education. I’m your host, Keith Weinhold, grateful to have you here.
Before we return to your listener questions… thanks to this week’s sponsors. They support us so, please, consider supporting them.
That is Ridge Lending Group. Consider YOUR next mortgage loan for income property there and see the difference that a lender that works specifically with investors like you… can make.
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That’s all-around good guy Gregg Cohen & the team at JWB. They always have good hair days over there.
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Finally, there’s Mid South Home Buyers, providing you some of the best rent ratios in the entire South in Memphis and Little Rock.
They’ve got the service that you’ve been raving about for years now.
That’s Terry Kerr, Liz Brody and all the fine peeps over there at MidSouth that shake your hand, look you in the eye, have a symmetrical smile, and even regularly recite your first name mid-sentence for ya. (Ha!)
Get started at MidSouthHomeBuyers.com
I have been inside the physical offices of all 3 of those sponsors that I just mentioned.
If your company is interested in advertising on GRE, let us know. We’d like to check you out first. Just like listener questions, you can also indicate that on the same page. Let us know at GetRichEducation.com/Contact You’ll see the “Advertising Inquiry” area there.
Conner asked me a question. “Keith, absolutely love your videos. I live in expensive Southern California (Orange County). Would you recommend my first property be a primary that I house hack or invest in an out-of-state rental?” Thanks, Connor.
OK, Connor. Well, there’s a lot to consider.
Let’s look at the Socal househack.
As you’re surely already aware, real estate prices and tax rates are both very high in California.
California also has a Tenant Protection Act enacted in 2019 that puts strict eviction laws into place. You might have rent control there too.
Now, as a SoCal househacker, that could, of course, take the form of buying one big SFH where you live in one of the rooms and rent out the other rooms.
The younger you are, the more likely it is that you’re tolerant of living with roommates. If you want to stay alone or with your spouse or whatever & want privacy, then you’ll househack a duplex, triplex, or fourplex.
Any one of those, SFH up to 4-plex, you can use an FHA loan on and pay just 3.5% down, or VA loan if you have VA benefits and pay 0% down. With either of those low down payment programs, you must live ON-SITE, usually for at least a year.
FHA recently approved 40-year mortgage loans and they will roll out next month. Yes!
In Orange County, CA, with really high prices, it might take a fixer-upper type home to make it affordable. If you aren’t handy, that’s a disadvantage on the house hack.
Socal is simply one of the most DISadvantaged places in the nation for long-term rental property, though there are still ways to make it work.
Then, if you go out of state, you can make it really passive. It won’t be a more active business like it would there for ya in Orange County.
Now, the downside of buying an out-of-state rental, like through GRE Marketplace, is that it’s going to take a 20 to 25% down payment.
But you can still find respectable properties in safe neighborhoods, in say, Memphis for as little as $100K to $120K. That means you might not have to come out of pocket for much more than you would a SoCal rental with it’s lower PERCENT down payment.
And, of course, the big advantages of the out-of-state rental are low purchase prices, high rents, advantageous LL-tenant law, your property is already renovated or brand new, and it is turnkey PMed if you so choose.
That’s exactly why a lot of people are choosing out-of-state properties at GREMarketplace.
Those are some of the major trade-offs, Connor. Thanks for the question.
The next question comes from Jesse in Reno, Nevada.
“With high inflation for two years and cyclical trends entrenched, more nations making foreign trade deals outside of the dollar, and the Treasury printing dollars like mad, I cannot believe the price for a shopping cart full of groceries at Safeway any more. Are we headed for a hyperinflationary period within the next decade?”
Well, that’s an interesting question, Jesse. Inflation is an awful malady that disproportionately affects the lower classes more than the upper classes.
But do I believe that there’s any significant chance of hyperinflation in the next decade, Jesse? Let me answer that.
Now, first of all, a lot of people - not necessarily you, Jesse - but a lot of people throw around the term “hyperinflation” without really knowing what it means at all.
A consensus of economists define HYPERinflation as an inflation rate of 50% or more every month. Yes, month.
With compounding, that would be inflation of more than 600% per year, not the… closer to 6% CPI inflation that we’ve had lately.
We could very well have longer-term waves of RECURRING inflation.
In America, our debt-to-GDP ratio is high. It’s about 120% right now. Back in 1990, it was just 55%.
Now our debt-to-GDP ratio also hit 120% back in the 1940s, but that was as a result of us having to pay for WWII. And the productivity of the 1950s quickly brought the ratio down.
Here’s the problem. Today’s 120% is not due to war; it’s due to all these politicians’ various accumulated promises over time.
That includes CONTINUOUS military spending.
And you know, historically, every fiat currency ends with the END of that currency. Every single one goes to die. The British pound is the world’s OLDEST currency in use today.
But to get hyperinflation, it generally takes two key factors:
First, a nation needs to have debts denominated in a currency that that nation can’t print.
Now, for emerging markets, its often dollar-based debt that they have and those nations can’t print dollars.
100 years ago, Weimar Germany had gold-based war reparations. That was their problem.
You cannot print gold, so they printed MASSIVE amounts of their currency. In more modern times, Venezuela and Zimbabwe experienced hyperinflation.
The second key reason hyperinflation occurs is when there’s no foreign demand for your currency… so you hyperinflate it.
So, to create hyperinflation, it takes a tremendous amount of printing… plus no demand for that currency.
The US still has foreign demand for our dollar and there’s a lot of debt denominated in the dollar globally. That represents demand for it.
Since the US can print its own currency, we’re not very likely to default on our total of $32T debt at all.
We’re motivated to let inflation keep running, at whatever fluctuating rate, Jesse.
So to answer your question, Jesse, no. No hyperinflation in the US in the next decade.
And as far as the prolonged elevated inflation that we’re having, as a listener, I think you know how to beat that by now. Own real assets.
If you own a house, have a 30-year mortgage. Don’t have it “paid off”. You need a mortgage to benefit most. Thanks for the question, Jesse.
Our last question comes from Zack in Claremore, Oklahoma. Zack asks:
Keith, is there such a thing as being “OVER leveraged?” Would you finance everything you can as long as you can create arbitrage?
Great question, Zack. The short answer is, “Yes, I would. I would finance everything up as much as I could without being overleveraged.”
Now, what “overleveraged” means IN GENERAL - out in the larger business world is that you’ve borrowed too much money in relation to your ability to pay it back.
In real estate, being overleveraged means that you take on so much debt that you can’t make your monthly payments on your principal, interest, and operating expenses.
As long as my properties are cash flow positive, even by a little margin, I have found no limit as to how much I would finance, Zack.
Let me use an example. Say that you buy a rental duplex with $4,000 of monthly rent income. Your mortgage and all of your long-term operating expenses are $5,000, leaving you with a NEGATIVE cash flow hole of $1,000 every month.
A $1,000 per month hole is a $12,000 each year hole that you’ve dug.
If you’re financially precarious elsewhere, that can be a difficult hole to fill in and you could descend into delinquency when you miss your first payment, then deeper into foreclosure when you’re several months behind, then the bank takes over your property.
You lose your property, lose your credit score, and lose the ability to get new loans for years. You were overleveraged.
You’ve borrowed too much money in relation to your ability to pay it back since your rent income was $4,000 and expenses were $5,000.
Well, when you buy right, that’s not likely to happen. First of all, your mortgage loan underwriter is going to check that you have enough income and enough reserves to meet their qualification standards before you can get the mortgage in the first place.
That’s a check against becoming overleveraged, yet things could still go wrong.
For one thing, with FHA loans, your debt-to-income ratio can be an eye-popping maximum of 57% and you can still qualify for the loan.
But you’re usually going to be buying your out-of-state rental property with a CONVENTIONAL loan.
Now, INSTEAD of becoming overleveraged, you would buy in the opposite scenario, projecting positive cash flow from day one.
On your duplex instead, if you had just $4,200 of rent income and $4,000 of expenses, you’ve got just $200 of cash flow, but that is a cushion.
And like I’ve described on previous episodes, historically your rent income rises faster than your expenses since your mortgage P & I payment stays fixed.
That’s why, over time, you often widen that delta from +$200 cash flow so that it just keeps widening to a greater & greater cushion.
So, to review, you’re unlikely to find yourself overleveraged if your income exceeds your expenses on day 1, when you have predominantly FIXED RATE LOANS…
… and then another measure of protection is when you own properties in multiple job growth markets - in multiple STATES even - you’re better protected against any changes in the law or regulations or changes in that region’s economy or even any detrimental disruption to your PM in each of your chosen investment areas.
I dislike overleverage. But I do like HIGH leverage. Because leverage makes compound interest feel really slow.
It is best to FINANCE your properties, even though mortgage rates aren’t as low as they were two years ago.
Look at it this way. With 20% down, you could buy five financed properties instead of one all-cash. Over time, five properties appreciating will build you more wealth than one appreciating.
If the properties don’t cash flow with 20% down, then get three with 33% down on each. That’ll accelerate your wealth-building & help you control the mortgage.
Then… if rates go down, you can still refinance. If rates don’t go down, you’ll be glad that you bought multiple properties instead of one.
Thanks for the question, Zack.
I hope you enjoyed listener questions today. I hadn’t done them for a while. If you did, please, go ahead and tell a friend about the show.
Also, if you’ve ever wanted to tell me what you think about the show… there’s a great way for you to do that & I will see it and read it myself.
You know, I recently learned that in Apple Podcasts Germany, we only have 3 podcast reviews in that entire nation on that platform.
And that prompted me to ask you - whatever nation you're in, to please, you don’t have to, but if you’d be so kind, leave a podcast review.
When you do that, it not only helps our show reach more people, but, I do actually read your review of the show, so I get that feedback.
So if you like what I’m doing here, I’d be grateful if you went ahead, and whatever your podcast platform is…
…Google “how to leave an Apple podcasts review” or “how to leave a Spotify review” and go ahead an do that - leave a rating & review for the Get Rich Education podcast and I’d be grateful.
I hope you found one or more listener questions today that really relate to you or your interests, or YOUR unlimited wealth-building potential. Thanks in advance for telling a friend about the show, and for your rating & review.
Until next week, I’m your host, Keith Weinhold. Don’t Quit Your Daydream.