Get Rich Education 450: What If I Gave You $10M? Real Estate Pays 5 Ways Revisited, Why Everyone Wants to Live Alone
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If I gave you $10M, learn why that probably wouldn’t even help you.
We revisit how “Real Estate Pays 5 Ways”, a concept that I coined right here on the show in May 2015.
Some think real estate pays three, four, or six ways. I revisit why there are exactly five.
Real estate has many paradoxical relationships. I explore.
Americans are living in homes longer than ever, now a duration of 10 years, 8 months.
The active supply of available housing dropped again.
Get an update on the gambling industry. A major sports gambling platform has offered to advertise with us.
Take my free real estate video course right here.
Zillow expects US home values to rise 4.8% from April 2023 to April 2024.
Months of available housing supply is currently 2.7 per Redfin.
Resources mentioned:
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Active Supply of Available Homes:
https://fred.stlouisfed.org/series/ACTLISCOUUS
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Complete transcript:
Welcome to GRE! I’m your host, Keith Weinhold. If you were gifted $10M right now, why that very well wouldn’t help you at all.
Learn a fresh take on how Real Estate Pays 5 Ways at the same time. A housing market update with perennially sagging inventory supply amounts and more outlooks for stronger home price appreciation than many expected. Today, on Get Rich Education.
Welcome to GRE!
From Montevideo, Uruguay to Montecito, CA and across 188 nations worldwide, you’re listening to one of the longest-running and most listened-to shows on real estate… the voice of real estate investing since 2014. I’m your host and my name is Keith Weinhold.
How would you like it if I gave you $1M?
You know what? That’s not enough to make my point. Make it $10M. I adjusted for inflation - ha! How much would you like it if I gave you $10M? How would that feel?
But what if it comes with this one condition.
What if I told you that I’ll give you the $10M, but you are not waking up tomorrow?
Not waking up tomorrow? No way!
Now you know that waking up tomorrow is worth more than $10M.
This is how you know that your time and your life are worth infinitely more than any dollar amount.
Hmmm… if your time is so valuable. Then why did you check Instagram 15 times yesterday to see who viewed your Stories? Ha!
Why are you spending time with your AI girlfriend? Ha!
Get Rich Education is ultimately about living a rich LIFE - whatever that means to you.
And we do approach that from the financial perspective here. Money does matter… because leverage, cash flow, and inflation-profiting enable you to BUY time.
We’re really one of the few investing platforms… this show is one of the few places with the audacity to tell you that - sure, a little delayed gratification is good… but the risk of too much delayed gratification is DENIED gratification.
Denied gratification is a terrible investing risk that most people either don’t give enough weight to - or don’t factor in at all.
And getting a $10M windfall is not as great as it sounds either.
History shows that the $25M Lottery winner quickly loses their money. Why does that happen?
Because it seemed like it was effortless to get the windfall, and because they don't know how to handle an amount like that.
It’s really similar to a capital gains-centric investor that gets a windfall.
See, cash flow investors like you & I - we can be more measured because your income stream is metered out over time. That’s why you are less likely to be irrational with your gains.
Now, I touched on some of those ways that you’re paid in real estate investing.
Real Estate Pays you 5 Ways™ simultaneously. That’s a concept that I coined right here on the GRE podcast. We since went on to have it trademarked.
Do you know when I first introduced that concept right here on the show - the month & year?
And I’ve since gone on to do a lot with “Real Estate Pays 5 Ways” to help other audiences understand real estate’s five distinct profit sources.
Well, I had someone on Team GRE here do some digging into some of our legacy shows - our past episodes… because I wanted to know when I first said it… and it was apparently in May of 2015, so 8 years ago that I introduced it.
Since then, many other thought leaders have gone on to cite the phrase. Someone other than me even wrote a book on it. And that doesn’t bother me at all. I’d rather that other people and readers get good ideas. That’s more important than getting the credit.
Of course, c’mon, you can recite these 5 now like they’re the Pledge Of Allegiance or something.
This is as automatic as the Lord’s Prayer is for Christians. The five are:
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Appreciation
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Cash Flow
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Your return on Amortization and
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Tax Benefits and finally
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Inflation-Profiting
But now, let’s dissect this frog here a little. Why five ways? Why not another number, like real estate pays four ways or six ways?
It is five. There are no more or less. Each of the five are a distinct benefit.
A common flawed case that Real Estate Pays 4 Ways is that most real estate teachers omit the Inflation-Profiting benefit on the long-term fixed interest rate debt.
Any GRE devotee knows that with 5% inflation on $1M in debt, you only owe the bank $950K of inflation-adjusted debt after year one, $900K after year two, etc. (And in the meantime, the tenant pays all of your mortgage interest.)
Some that make the 4 Ways case question the Tax Benefit. Could the tax benefit really be considered a profit source, or is it just a deal sweetener?
It's a profit source.
Outside the real estate world, to obtain a tax write-off, you must have a real expense backed up with receipts, like building a new computer equipment or buying a new farm tractor.
Instead, the magic of real estate tax depreciation says that you can just write off 3.6% of the improved property value each year just for doing... nothing all year. No improvements necessary.
It's a phantom write-off, yet legitimate to the IRS.
Then the 1031 Exchange means you can endlessly defer all of your federal capital gains tax for your... entire life.
Yes, it's one of the few places in life where procrastination actually pays.
I've even heard some say that they're a fan of GRE's Real Estate Pays 5 Ways™, but they've discovered a sixth.
This often involves an event that's either unlikely or falls into one of the existing 5 Ways.
For example, "My appraisal value exceeded the contract price. I’m buying it for $320K, but the appraisal is $340K. I got $20K in instant equity. See, I was paid a 6th way."
No.
I mean, good for you, $20K of instant equity is a nice sweetener - that’s a $20K credit in your net worth column that you received the moment you opened up that appraisal e-mail from your lender and saw it. Nice!
But an appraised value that exceeds the purchase price is not COMMON enough to be expected… and the 5 Ways are.
Also, you can make the case that "instant equity" is covered in the first way you're paid, Appreciation.
The reason that we invest in real estate is because there's virtually no other vehicle in the world where you can expect to be paid five ways at the same time.
That’s a foundational principle - it’s a core concept here at GRE.
It’s why we do what we do. It answers the compelling “why” for real estate better than any answer there is…
…and that’s why anything less than a 20 to 25% combined return when you add up all five ways is actually disappointing - and that’s done with low risk - which is paradoxical almost anywhere else in the entire investing world.
If you haven’t yet, take my free “Real Estate Pays 5 Ways” course in order to really understand each of your five distinct profit sources, where they come from, and how that all fits together.
It’s at GetRichEducation.com/Course. The free “Real Estate Pays 5 Ways” short course is free at GetRichEducation.com/Course
Let’s talk about real estate trends.
You know, real estate investing has a lot of relationships that you just wouldn’t expect.
Part of that is because it intersects with the economy. Economies are complex and you get these relationships that are counterintuitive.
For example, in a recession, mortgage rates and all interest rates tend to fall, not rise.
Another exhibit is how debt BUILDS wealth with prudent leverage.
Another one that I’ve explained extensively here and the show and elsewhere is that higher mortgage rates correlate with higher home prices - not lower ones. That throws nearly everyone off.
Some physical real estate trends have been counterintuitive.
About 30 years ago in America - the 1990s - a new trend was fueled that everyone wanted to have a big kitchen.
New homes were often built with a big, fancy kitchen in the center of the home. Open floor concept - no galley kitchens anymore. That began back then.
And this was really the advent of - at the time - what we considered luxury amenities like granite and quartz kitchen countertops.
Anymore, that’s become standard. Even our build-to-rent providers at GRE Marketplace often have new granite countertops in rentals.
But the paradox here is the assumption that a big emphasis on kitchens would mean that more people would start cooking at home.
Oh, no. Just the opposite, in the last 30 years, despite the big kitchens, more people eat out at restaurants and fewer people eat at home. Another real estate paradox.
Another counterintuition was the pandemic. Society locked down, people lost their jobs and you think that there are going to be mass foreclosures because with no job, no one can afford their mortgage payment.
People thought the pandemic will cripple the housing market. Oh, it was just the opposite. That created a housing boom. Everyone wanted their space. Another paradox.
Remember here on the show, shortly after Biden was elected, I told you that this administration - for better or for worse - will not let people lose their homes.
Then we had high inflation on the heels of the pandemic. That was bad for consumers and good for real estate.
But high inflation is supposed to mean that bitcoin and gold would surge. Well, another paradox, that brought crypto winter, and gold did nothing in high inflation, until more recently here.
Rather than high delinquency rates we’ve got low delinquency rates. In fact, the mortgage delinquency rate has been steadily falling for almost 3 years now. That’s because of strong borrowers and tough lending standards.
Now, another real estate investing trend, though there’s nothing paradoxical here, is mortgage rate resets.
Here in the US, on 1-4 unit rental properties, you’re in great shape, whether you locked in your interest rate at 3% or 7% - the thing is that you have a steady payment… and on an inflation-adjusted basis, your same monthly payment amount goes DOWN over time - it’s a tailwind to your personal finances.
Inflation cannot touch your steady, locked-in P & I payment.
But many Canadians are up for renewal with their 5-year fixed rate, 25-year amorts.
Yeah, just across the border in Canada, they don’t have these 30-year fixed rate amortizing loans.
Their rate resets every five years.
One Canadian homeowner that I talked to, he doesn’t live in that posh of a home in Ontario, it’s just a little above the median housing price.
His family’s loan terms are about to reset on the primary residence and it’s expected to increase their monthly payment by $1,280 / mo.
How would you feel if that happened to you overnight? It’s a nuisance at best. It might even crimp your quality of life - or worse.
That can’t really happen to you in the US.
Having a 30-year FRM is like you having rent control as a tenant.
In coastal areas, some tenants that have a rent control deal - New York, California, Oregon - they want to live in their home for decades under rent control because there’s a ceiling on their rent. Move out of their unit - lose the deal and they’d have to reset somewhere else.
It’s the same with you as an American homeowner or REI in the 1-to-4 unit space. Your P&I price cannot rise.
And, I’ve talked about the interest rate lock-in effect before, constraining the housing supply.
Get this. Just last week, First American Title Company informed us that the average resident duration in a home hit a record high.
Amongst this lower intrinsic mobility rate, interest rate lock-in effect, and other societal trends, the average resident duration in a primary home in now 10 years, 8 months.
Lower mobility. Studies show that people are holding onto their cars longer than ever, and people aren’t parting with their real estate either.
So, then, with fewer properties coming to market, let's update the available supply of homes.
This is pulling from the same set of stats that I’ve been citing for years, in order to be consistent. Check this out. This is the FRED Housing Inventory - the Active Listing Count of Available US homes.
Remember, historically, it's 1-and-a-half to 2 million units available. In 2016 it was still 1-and-a-half million.
Then in April of 2020 it dipped below 1 million and fell sharply from there - which I’ve famously called this era’s housing crash.
It was a housing SUPPLY crash - which hedges against a price crash.
It fell to as low as 435,000 a year later in mid-2021. Gosh, under a half million.
It’s rebounded as builders know that they need to build more homes. Six months ago it got up to 750,000 available homes - which is still less than half of what
America needs.
And now, today, did the supply get up toward at least 1 million yet? No.
It has dropped back the other way to just 563,000. This astounding dearth of housing supply - it’s a condition that we could very well be in for over a decade.
This scarce supply is a long-term American condition. Yes, it’s good for your real estate values - both present and future. But it is a problem too. It’s a contributor to homelessness!
The Covid home improvement boom is officially over. So says Home Depot. They posted a revenue drop in the first quarter and warned that annual sales would decline in 2023 for the first time in 14 years.
Home Depot said that shoppers are now holding off on the big-ticket purchases they made during the pandemic and are choosing to break up larger projects—like remodeling a bathroom—into smaller, bite-sized pieces.
There’s a fascinating new study from a bipartisan think tank shows that everyone wants to LIVE ALONE.
That’s what Business Insider just reported on. Now, of course, the term “everyone” is an exaggeration.
But Statista and Our World In Data tells us that - get this - this is the number of SINGLE-PERSON households in the US - people living alone.
Back in 1960, that figure was just a paltry 13%.
By 1970, 17% of households were people were living alone.
Every ten years, that percent crept up to 23, 25, then 26%. By 2010 it hit 27% and by 2022 it hit 29%.
Now, you can’t think that’s good for society - to have all these single-person households. Almost 3 in 10 living alone. C’mon. Find a good spouse.
But in any case, that’s good for you as a REI, when, say, 10 people live amongst 5 homes rather than 3 homes - absorbing all that housing supply and keeping it scarce.
Even if the US population stayed the same, there’s more home demand - with that trend.
Of course, the US population is growing, though really slowly, probably just a few tenths of 1% this year.
But because of all the Millennials and the embedded “Work From Anywhere” trend, housing demand is pretty strong.
The recent rental housing demand and rent boom came almost entirely due to a surge in household formation -- young adults leaving the nest and roommates decoupling to get their own space... especially in urban areas.
People working from home want more space (without a roommate) AND are willing to pay more for it -- and able -- to pay more for it.
So if you're bullish on work-from-home remaining the norm for at least a chunk of the population (and I am), you should be bullish on the rental demand outlook.
And this has really revitalized America’s SUBURBS - that’s the area where you find that space.
The WFH-fueled rise of the suburbs is a wake-up call to cities, where, in the case of NYC, 26 Empire State Buildings’ worth of office space now sits empty.
The typical office worker is spending $2,000–$4,600 less annually in city centers. Because even if they GO to the city to work, they might only do that 2 days a week now - not 5.
I’ve got more for you straight ahead, including a new forecast on how much home prices are expected to rise this year.
Again, check out my free video course if you haven’t “Real Estate Pays 5 Ways”. Get it at GetRichEducation.com/Course
I’m Keith Weinhold. You’re listening to Get Rich Education.
Yeah, big thanks to this week’s show sponsors. I’m only bringing you those places that will bring real value to your life.
Now, here at GRE, I recently read an offer that one of these major sports gambling platforms sent us. They want to advertise on the show here.
Do you want to hear sports gambling ads on GRE? I’ve got an opinion about that, that I’ll share with you shortly.
Gambling is not the same as investing.
If you’re wondering why you’re hearing more about gambling, especially sports gambling than you had just a few years ago, well…
Now, just last week, it was FIVE years ago that the Supreme Court lifted a federal ban on sports gambling in the US.
That spawned a multibillion-dollar industry that’s transformed how Americans watch, talk about, and experience sports.
Americans bet $95B on sports in legal jurisdictions with consumer protections last year. That’s more money than the amount spent on ride sharing, coffee, or streaming… and you can bet that the off-the-books gambling number, if added in, would make that WAY higher.
Two sports betting companies, DraftKings and FanDuel, control 71% of the US market, per gambling analytics firm Eilers & Krejcik. Gosh, that’s almost a duopoly right there.
But despite that, these companies have struggled to turn a profit. FanDuel recorded its first quarterly profit just last year, and DraftKings has YET to report a profitable quarter. Well, I’ll just tell ya, it’s one of those two big companies that inquired about advertising on GRE.
Of the 50 states, the number is 33 that allow it. That’s 2/3rd of the nation that has legal sports betting (Washington, DC, has it too). Another four states have legalized sports wagering, but don’t have any sportsbooks operating yet.
Interestingly, the three most-populous US states—California, Texas, and Florida—have not legalized sports gambling. And they account for 26% of all teams in the major North American pro leagues.
The number of women joining sportsbook apps jumped 45% last year, marking the third straight year that new women users exceeded men. Hmmm. I guess that’s the growth market there.
My inclination to have gambling advertising and associating with these companies is NOT to do it… not to accept that advertising income.
I don’t see how that’s serving you. This feels like a conflict in my gut and in my heart.
Gambling is sort of the opposite of investing for a stable rental income stream.
I mean, either way, I guess you’re putting your money at stake. But that’s about the closest common ground I can find.
At least at this time… and probably all-time, it’s a “no” for gambling content here.
That’s not any sort of moral judgment on the activity at all. I mean, gosh, as a teenager, I was really into sports gambling, but it was the informal kind. My friend & I each lay a $10 bill next to the TV - Phillies vs. Mets. Winner gets the $20 bucks.
So, my inclination is a pretty easy “no”.
Hook up with our sponsors - they support GRE. That’s Ridge Lending Group, offering income property loans nationwide.
JWB Real Estate Capital - if you want performing income property, JWB really has Jacksonville, FL sewn up & locked down. They do one thing and do it well.
Then, Freedom Family Investments. Get started with them for real estate funds that are ultra-low hassle. Text “FAMILY” to 66866.
Where will the next ten years take you & I on the show here? I would love to be along for the ride with you. I hope that you’ll be here with me.
Let me just take a moment to remind you that I’m grateful to have such a large, loyal audience to… well, listen to the words that I say every week. Thank you for your support.
This show has almost reached the 5 million download mark. I’ve been shown that it’s between 4.8 and 4.9 million downloads now. I’m genuinely honored and a little humbled about that even.
Let’s listen in to this 3+ minute CNBC clip. This is Lawrence Yun, Chief Economist at the NAR - the National Association of Realtors talking about the housing market just last week.
Now, a little context here - historically, the NAR has tended to give these dominantly sunny side-up, glowing, everything is always good & getting better kind of remarks on the housing market.
But I’ve been listening to the NAR’s Lawrence Yun for quite a while and think he’s been rather balanced.
Here, he discusses how real estate sales volume is down - which has a lot to do with low supply, that mortgage rates are steady, and that prices are slowly rising in most parts of the nation.
[OK, Vedran. Here’s where we play the insert.]
0:09-3:42 First words to keep are: “Lawrence Yun…” Last words to keep are: “... half of the country.”
Now, Lawrence Yun did go on to say that he thinks that the Fed should lower interest rates by a half point, and more.
Let us know if you’d like us to invite Lawrence Yun onto the show. As always, you can leave your suggestions, questions, or any comments about the Get Rich Education podcast or any of our other platforms at our Contact center at: GetRichEducation.com/Contact
When it comes to national HPA, just last week, we learned that Zillow revised its home price outlook upward.
Between April 2023 and April 2024, Zillow expects home US home values to rise 4.8%.
You’ve got more signs that more & more American markets are being considered a seller’s market rather than a buyer’s market, which tilts toward price appreciation, though I still think pretty moderate price appreciation this year.
CNN recently published an article where they even posited the question: “Are Bidding Wars Back?” Yes, they are in a few markets.
Another measure of housing supply is the MONTHS of available supply. I think you know that 6 to 7 months of inventory is considered a balanced supply & demand market.
If it gets up to 10 months of supply, you tend to see little or no HPA.
Well, indicative of the low housing supply, we hit a winter high of 4-and-a-half months of supply.
And today, it’s down to just 2.7 months per Redfin. 2.7 months. That’s just another sign that demand is outpacing supply.
Then, among those entry-level homes, like the NAR’s Lawrence Yun eluded to, they’re even harder to find… and they’re the ones that make the best rentals.
How hard are these to find? I mean, in some markets this can be even more rare than finding a true friend? Ha!
Is it as rare as the Hope Diamond? Or perhaps a Honus Wagner baseball card? Ha!
Well, the good news is that we actually have the inventory that you want at GRE Marketplace.
Besides that, we actually have something that you really like and that is - mortgage rate relief to help you with your cash flow.
Purchase rates have been hovering around 6 1/2% lately. That’s the OO rate, so for rentals, it could be 7%+.
Well, how about rolling back the hands of time? Through our great relationships here and our free investment coaching, you have access to 4.75% interest rates on investment property - and many of these are new-builds in path-of-progress Florida.
Yes, our free coaching will get you the 4.75% mortgage interest rate, they’ll even help write the sales contract for you if you’re new to this, walk you through the property inspection, the property condition, the appraisal.
Yes, a 4.75% interest rate… today, from these homebuilder buydowns. I don’t know how much longer that can last.
To be clear, you’re not buying an income property FROM us. You’re buying it with our help and our connections. It is all free to you. This is educational support for you.
In fact, our coaching support like this through our sole investment coach, Naresh is becoming so popular, that I can announce that we soon plan to add a second investment coach. Yes! A new one.
And interestingly, you have heard of this soon-to-be second investment coach because they’ve been a guest on the show here a number of times. Yeah, we’ll make that introduction on a future show. You’ll find THAT interesting.
But, our Investment Coach, Naresh, does have some slots open to talk with you and help you out. A lot of the best deals currently with these 4.75% rates are with new-build Florida duplexes and fourplexes.
You can use them for rental SFHs too. Last I checked, the deals were a little better on the duplexes and fourplexes.
You probably thought that Sub-6 and sub-5 mortgage rates are about as unlikely to make a sudden comeback as AOL or Myspace, but we’ve got them here now.
Now, that 4.75% is just one of two options that we have with some Build-To-Rent builders that are fairly motivated. So to review the first one fully… you can get a
-
4.75% interest rate with a 25% down payment
-
1 year of free property management and
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$1,000 off closing costs per deal
That’s one. Or, option 2 is:
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Zero down payment - yes, 100% financing
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2 years free property management
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$1,000 off closing costs per deal
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Negotiable price, open to offers
They are the two options.
It’s rarely more attractive than this. If you hear this in a few weeks, or perhaps months, I doubt that these options will be there any longer.
So I’ll close with something actionable that can really help you now.
If you want to do it yourself, that’s fine, like thousands of others have, get a selection of income property - despite this national dearth of supply at GREmarketplace.com
Or, like I said, right now, it’s really helpful to connect with an experienced GRE Investment Coach - it’s free - our coach’s name is Naresh - for those 4.75% interest rates or zero down program - whatever’s best for you… you can do all that at once at GREmarketplace.com/Coach
Until next week, I’m your host, Keith Weinhold. DQYD!