Real Wealth Show: Real Estate Investing Podcast

Virtual real estate isn't something you can stomp on, but it has become wildly popular among a certain subset of people and investors. Some of these virtual spaces are so desirable, they come with big price tags and are multiplying in value to six-figure amounts. But exactly what is virtual real estate and why should we care. In this episode, Janine Yorio will simplify the idea of virtual real estate and the metaverse where it exists. She'll explain how it all works, who's involved, why people are paying top dollar for virtual properties, and what this all means for our future. (Hint: She claims it'll be intrinsic to our existence as the next step beyond the internet. Janine is the co-president at metaverse innovation and investment platform, Republic Realm. She previously worked as CEO of fintech company Compound, which focused on real estate investing, and was bought by Republic in 2020. She has also worked in private equity for Northstar Capital and in real estate and hotel development at The Standard Hotels. She's a graduate of Yale University. She can be reached at janine@republicrealm.com. You can also check out new trends in three-dimensional fee simple real estate by joining our network RealWealth, for free, at realwealthshow.com. As a member, you'll have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! TRANSCRIPT [music] [00:00:00] Narrator: You're listening to the Real Wealth Show with Kathy Fettke, the real estate investors resource. [silence] Kathy Fettke: I've got some good news for you here today. If you can't afford to buy real real estate, perhaps you could look into virtual real estate. I'm Kathy Fettke and welcome to the Real Wealth Show. Virtual real estate you ask? Apparently, there's a market for it, and it's an expensive one. Our guest today, Janine Yorio is the co-president at Republic Realm, a metaverse, innovation, and investment platform. She previously worked in private equity for Northstar Capital and in real estate and hotel development at the Standard Hotels. She's a graduate of Yale University, and she's here with us on the Real Wealth Show today. Welcome, Janine. Let's start with what is virtual real estate. I cannot seem to grasp this concept. Janine Yorio: Virtual real estate, at its simplest form, is real estate inside a video game. If you've ever played a video game, depending upon your age, maybe it was Super Mario Brothers, maybe if you're younger, it's Fortnite, there are games and there are spaces inside those games where when you're playing them, your avatar moves around and sees different things. Sometimes there are buildings, there are roads, there might be planets and spaceships, it really depends on the theme of the game. The reason why digital real estate is now something we're even talking about or that you and I are talking about is because the digital real estate inside some games today is built on the blockchain, and as a result, the interest in investing in that real estate has achieved new highs, and people are now much more interested in it than they were when it was just traditional space inside a video game. Companies have been buying advertising inside video games for a long time now. You can go play Madden football or FIFA [00:02:00] World Cup, and there are games on the stadiums inside those sports games. I'm sorry, ads on the stadiums. What's different now is that the games are built on the blockchain, and there's this idea that if you buy things in one game, one piece of real estate in one game, you'll be able to move it around or use it or find utility in other games and that has made people more comfortable with investing much higher dollar amounts in this digital real estate than they had been previously. Kathy: Fascinating. Okay. When people did it before it was blockchain, it was more for fun or for bets? Janine: No, it was the companies that were buying it for advertising. Kathy: For advertising, okay. Janine: Yes, for advertising. Kathy: Now when you say that's with blockchain, I'm starting to understand blockchain, but are they buying a coin? Janine: Kind of. Set aside the blockchain conversation because it's critical to understanding what digital real estate is. That's only the reason why it's become very popular. It has very little to do with what it actually is. Digital real estate is the space inside a video game. Generally, it's the space inside a video game that has no stated objective, meaning you're not there just to kill aliens or capture or somebody else's battleship, you're there to build something. You have the freedom to build whatever you want. You can build your own world, you can build your own house, and owning the real estate inside the game gives you carte blanche to build something that's in your imagination that you can now put in this game that other people can walk around and see. That's what digital real estate is. You can use it for advertising. If you're a company, you can make it a billboard, you can make it a store, you can make it an event space, you can host concerts there, you can sell. Say you're an artist or a creator, you can sell your art or creator through a gallery. There's lots of different things you can do with digital real estate, much the same way you can do with real real estate in the real world. Kathy: Wow. Okay. How do I find it? [00:04:00] Janine: That's where it gets harder and that's where a company like ours starts to add a lot of value. There are hundreds of different games that have a digital real estate component. Many of them have not yet launched yet, so, people oftentimes buy the real estate in the game before the game launches, much the same way that people buy homes in the neighborhood before the neighborhood is developed. So, there are groups, people, companies going in and buying the digital real estate before games launch, and that's where a group like ours is able to act as the intermediary and find those opportunities and bring them to investors, and that's what we do at Republic Realm. We create investment vehicles that allow people, funds, family offices to invest in this category because it can be difficult to access as an individual investor who may not be as familiar with this space. Kathy: You're like a real estate agent for virtual real estate. Janine: We're more like a real estate investment manager. We don't broker the deals, we actually principle the investments. We have investment vehicles where we take in third-party capital and go out and buy those assets and manage them on behalf of our investors. Kathy: Would this be considered a higher-risk investment? Janine: This is an extremely high-risk investment. You shouldn't make an investment like this unless you're comfortable losing all of the money you invest. It's not at all like traditional real estate, which is usually where you park your money, when you've made a lot of it and you want to be sure not to lose it. This is incredibly speculative. It's more speculative, even then some more traditional forms of cryptocurrencies, so, it's not something that you should enter into if you are not very, very comfortable with that risk. Kathy: Are you familiar with eXp, the real estate brokerage that's very much online and somewhat virtual? Janine: Yes. I believe during the pandemic they were hosting meetings and conferences for their employees in these virtual spaces, right? Kathy: [00:06:00] Yes, that's exactly-- That's why I can understand it from that perspective because I am an eXp agent and we're actually growing our brokerage. If anybody's interested, give me a shout-out at kathy@realwealth.com. But yes, you meet virtually inside this eXp brokerage in this building and there's different rooms you can go into, you can go into a private room, you can be in public. Everybody has their avatar. It's pretty out there. It was a little bit difficult for me to understand, but for younger people like my daughter who spent a lot of time playing. What was the game where you had little people that you were building families and homes? Janine: Minecraft, Roblox? Kathy: Oh, gosh. I can't think of it. She would design, she would just build her family in her house and play house basically, play dolls with it. I'm sure it'll come to me as soon as we're done, but that's basically what eXp is like. At first, I was very confused by it, but as we live in this world now where more and more people were going virtual, we would see more of this kind of thin. Very fascinating, very fascinating. All right. Can you give me some examples of what some people are doing? I know you said some like art galleries, but do you have any specifics? Janine: Sure. We are not only an investor in digital real estate. We're probably the biggest developer of digital real estate in the world. We've developed about seven different projects. The most notable of them is a shopping mall. It's a shopping mall that exists in a metaverse called Decentraland. It's based around a district in Tokyo called Harajuku, which is where Japanese teenagers go by streetwear. We built a shopping center called Metajuku, which has this Japanese, Tokyo theme to it, and it is hosts to digital wearables companies that sell clothing that can be worn by people's avatars in the metaverse. [00:08:00] So, the tenants and the landlord-tenant relationship are structured very similarly to traditional landlord-tenant relationships. There's a lease. There are two components of the lease, a face rent and a percentage rent based on sales volume from those stores. It looks like a regular shopping mall. There are storefronts, there's a promenade where people can walk around. It becomes much easier to understand what digital real estate is when I start talking about things like a virtual shopping mall, it's a place to go and buy things. In this particular situation, you can buy wearables for your avatar in the metaverse, but in other situations, you can go and buy things that would show up at your house in a box, so, it's not always that you're only able to buy digital goods. You can also buy real-world goods, you're just finding out about them while you're spending time in these digital environments. We're also the developer of a master plan community called Fantasy Islands. It's a series of 100 private islands that were built in a metaverse called The Sandbox. They're each architectural unique and designed by real-world architects. They're meant to be ultra-luxury, so, they're definitely the very high-end. There are three different villa varieties, each of which has different traits. They all have a very large dock suitable for having a private yacht and other maritime vessels and vehicles, and they're expensive. We originally sold the first hundred for $15,000. They were priced in cryptocurrency but they equated to $15,000 each, and now they're trading for upwards of $100,000. These are private islands that can only be found in a video game called The Sandbox where you can go there with your avatar, invite your friends, avatars, have parties, do whatever you want there, and generally show everybody that you are successful and that you're smart enough to have gotten in early and buy one of these private islands, so, those are the kinds of projects we're developing and building. [00:10:00] The dollars that are being made doing it are very real. They're not insignificant by any stretch, and that's what makes this so interesting. It's not just a curiosity, it's not something for kids. The dollar amounts that are being deployed in these metaverses are truly enormous. We actually completed the largest metaverse land sale in Decentraland. We spent $900,000 on a parcel of land in Decentraland. The market cap of land in the largest few video games, we call them metaverses, are well over $1 billion. All the land in those video games and you take it and you add it all up, it's valuable. A lot of people understand that value and believe in that value. When properties inside those metaverses trade, they're paying those prices that support that valuation. A lot of times, real-world real estate people will look at me and they're like, "Well, this isn't real." That depends on your definition of real. If real means real money, making real returns, it's very real. If you mean real like you can go touch it, i's not real, then websites aren't real either. Is your website valuable? Do you need a website? Do you need a URL and a domain name? That's not real, but it's certainly valuable. If you can measure the value of digital real estate, based on the number of people that see your space, whether you're a company or a person, then you can start to understand this stuff isn't real in the traditional sense, you can't kick it, but it definitely has value in the sense that it gives you a space that people can see, people from all over the world. They don't have to fly there or walk there. They can see your space from their computer, and I think that's a really powerful sales tool that we're very quickly going to realize every company needs one. Needs a storefront, needs a presence, needs an activation in these metaverses because that's where the next generation of consumers are going to find things. Kathy: It's always hard to wrap your head around new technology. I think you're probably too young to remember what it was like to have the internet enter our world. just like you said, [00:12:00] there were so many people that were late to the game on just creating a website, not understanding-- Janine: Yes. Were like, "You don't need that. You don't need that for anything." Now, real-world companies, of course they have websites, and internet-only companies are starting to open bricks and mortar stores. It's becoming apparent, you have to meet consumers where they are, whether it's online or in-person, you have to be in both places almost equally. I think the metaverse is going to be the third leg on the stool. Our generation is perfectly content to scroll through a 2D website and just scroll down the page looking for things. Today's children who grew up playing immersive video games like Minecraft, like Fortnite, like Roblox, that's not how they interact with technology. They want video because they grew up on YouTube, they want immersive environments because they grew up on Minecraft, they want audio chat with their friends, they want to hear what people are saying while they're doing these things, and that's how they interact with technology. It's not a curiosity, it's already here, it's just not already here for people of our vintage. It's definitely already here for people who are 10 to 16 years old. Those people inevitably will become adults. This is their expectation of technology. I'm here to build it so that it's ready when they start to grow up, and also when other people who are slightly older start waking up to this reality as well. Kathy: I think that will be the quote I take from today is it's not for people of our vintage, that's such a sweet thing to say. [laughter] I love it. Janine: We are of this vintage and we're talking about it today. It's not so difficult to understand that it's beyond. The same way that Facebook is not for the TikTok generation and TikTok is not for the Facebook generation, every generation and their subgroups within that expect different things from their technology and from their own personal tech stack. The metaverse is definitely going to be a part of the tech stack of Gen Alpha, which is that next generation coming up behind Gen Z. Kathy: Gen alpha. Wow. Gosh, I was going to ask something. [00:14:00] I does remind me a lot, I remember the name of the game, The Sims. Janine: Yes, Sims, exactly. It's exactly like that. The Sims were the first of these world builder games, then there was another very popular game in the early 2000s called Second Life, which was focused more on adults. People build stores, they dated, they did all sorts of social connecting activities in this particular metaverse. They didn't use the word metaverse back then, but it was very much like a metaverse. Yes, SimCity was the original predecessor for all of these things. Kathy: Oh, and my daughters were absolutely obsessed with it. I, with my vintage, did not understand it at all, but it was for them like playing house, but being able to actually build it and create it and make it your own. They loved it. Janine: For this generation, some of them spent 18 months in lockdown. For them, the only way they were able to play house with their friends was through these virtual games. While they've been popular for a while, the pandemic just created a completely different shaped growth curve for these types of experiences because children generally need socialization and they had to find it somewhere, and these games filled a void that was left by the pandemic. Even we have too. This social norm of speaking to friends on zoom has gone from edge case to very, very commonplace. We have birthday parties on zoom, we obviously all do meetings on zoom. This idea of expecting your technology, not to be flat and too deep, but to have audio and video and really command your attention is how now we've all had to come up the curve and learn and how to interact with technology too. The idea of us doing it, right now we're doing it on zoom. I'm looking at your house, you're looking at my fake background. In the metaverse, we'd be sitting next to each other at a conference table or at a bar. That's the difference. We'd still be talking, but it would feel even more real because it wouldn't be through this fake [00:16:00] layer, this lens of a computer screen, it would be like we're sitting there next to each other. Kathy: There's must be a psychological component that has been studied very carefully because I've heard that your subconscious really can only take in what the eyes are bringing in but responds to it. That's why we can watch a movie and sweat and be afraid during a murder scene. We know it's not real, it's just a screen on the wall, but we can have all these reactions to it thinking it's real in the moment that we're watching. I had heard that, that the subconscious can't tell the difference. It just takes in what it's taking in. I'm wondering if you're going to one of these islands, if you really feel like you'd be on vacation. Janine: Well yes and no. I think you might feel you're on vacation in the sense that you feel very vindicated for having bought one of these things since they're so rare and your friends are envious. However, the metaverse it's built in is called The Sandbox. The Sandbox is designed to look exactly like Minecraft. If you've ever seen Minecraft, it looks nothing like the Caribbean, it's these square boxes that stack on top of each other, and it's not the slightest bit photo-real. You'll be on a vacation, but in a video game that looks like Minecraft with square palm trees and square people and square everything. Yes, you'll feel like you're on vacation, but there's no intent to kind of suspend reality and make it feel like we're actually there. It looks very different from the real world. Kathy: Oh, okay. Not really like 3D. Janine: It's 3D, but it looks very specific, like a very specific type of video game. Kathy: Fascinating. Well, thank you so much for enlightening us on what our kids will be doing in the future. [laughter] Thank you so much. We'll have all your contact information in the show notes. Janine: Thank you, Kathy. [00:18:00] Kathy: Thank you for joining me here on the Real Wealth Show. If you're looking for hard assets and real real estate, you can get more information at realwealthshow.com. Once you join, it's free. You'll get access to hundreds of free educational webinars that will teach you the ins and outs of real estate investing. Everything from tax deductions to getting the right loans, and also referrals to property teams across the country who have property management in place to make it a turnkey investment. Again, you can check that out at realwealthshow.com. Narrator: The views in opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to realwealthshow.com. [00:18:57] [END OF AUDIO]

The housing market has been running up against a lot of obstacles, but nothing seems to slow it down. Prices have continued to rise while buyers clamor after a tight supply of homes, and builders struggle with supply chain issues and construction costs. Today's guest will talk about the crazy demand for housing, and how that might play out in the coming year. Danushka Nanayakkara-Skillington is the Assistant Vice President of Forecasting and Analysis for the National Association of Home Builders. She oversees research into the housing market including industry surveys and various forecasts for national, regional, long-term, and remodeling expenditures. Danushka shares her thoughts on 2022 in this episode. You can also check out new trends for real estate investors by joining our network RealWealth, for free, at realwealthshow.com. As a member, you'll have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! TRANSCRIPT [music] Speaker 1: You're listening to the Real Wealth Show with Kathy Fettke, the real estate investors resource. Kathy Fettke: The housing market has been running up against a lot of obstacles, but nothing seems to be slowing this wild real estate market. Prices have continued to rise while buyers clamor after a tight supply of homes. Today's guest will talk about the crazy demand for housing and how that might play out in the coming year. I'm Kathy Fettke and welcome to the Real Wealth Show. Danushka Nanayakkara-Skillington is the assistant vice president of forecasting and analysis for the National Association of Homebuilders. She oversees research into the housing market, including industry surveys and various forecasts for national, regional, long-term, and remodeling expenditures. She's here with us on the Real wealth show to share her insights. Danushka, welcome to the real wealth show. Danushka Nanayakkara-Skillington: Thank you much, Kathy. Thank you for having me. Kathy: What an interesting time to be in the home building business. It's crazy out there. What is going on? We knew that there were lumber shortages, but now it seems there are shortages of all kinds of things. Can you give your input on that, your perspective on what's going on with the supply chain? Danushka: Yes, lumber was a big issue last year, and even this year. I think it peaked in July, and lumber prices were adding, like $36,000 to a single-family home and $10,000 to an apartment. Prices were insane. It went down actually. It's the other stuff that goes into residential construction. Input to residential construction is up 22% year over year. Steel and wood products are driving up the prices. Not only that, the builders are seeing these shortages in appliances, [00:02:00] every type of pretty much building construction, and also, everything that goes into a house. There is so much of wait time, long delivery times. In a nutshell, it's fair to say that the supply chains are a mess. The builders are really feeling it because 2022 was a crazy year with this renewed interest in housing, so the demand skyrocketed. The builders are trying to meet that demand, but the supply side is the biggest obstacle to it right now. Kathy Fettke: Yes. Now we're hearing about all these shipping containers sitting on the ocean not being able to unload, add another issue here. I don't expect you to have the answers to everything. I'm wondering if, you know why are all these shipping containers sitting there with the things that we need? Danushka: I also read that article last week that came out 70-something ships in LA, 20-something ships in Georgia, and they've never seen that happen before. I have no idea why. All I read was that we need to get Christmas shopping done ASAP. [unintelligible 00:03:19] Kathy Fettke: Yes, it says something about the lack of workers or increased demand. We all need to get-- The bottom line is those materials and supplies, it may not be a shortage so much as an ability to get it to who needs it at this time. What a challenging time for builders who have never had much demand. Where are we now in demand? Is demand today as high as it has been over the past year, or is it starting to wane? Danushka: The demand is there. [00:04:00] I think the buyers are pulling back a little bit because of the high house prices. The demand is coming from the demographic shifts that we have seen. The Millennials are in their peak homebuyer years. You know we define peak home-buying years as 25 to 45. They're in the peak home-buying years. Also, the housing deficit. The chronic underbuilding that we've seen in the last decade is also what's contributing to this demand for housing. They are pulling back a little bit right now simply because of the [unintelligible 00:04:40] mentioned the high house price, but there's not a lack of demand right now. Kathy Fettke: That's really a challenge, right, to bring in affordable housing at this time when material costs have gone up so much and labor costs and permit fees and the delay time. When a project is delayed, that is not a free deal for the builder. They usually have debts to pay during that time and the profits margins get squeezed anyway. Then if pricing hits a cap of affordability, people just can't afford the cost of a home because it's become so expensive to build it. What do you do? It's a catch 22. We need more housing. We need it to be affordable, but costs are simply really high. Danushka: Yes, exactly. On the supply side, we covered the building materials, the lack of skilled labor. [unintelligible 00:05:36] is driving up labor cost. Regulatory cost, you just mentioned, makes up almost a quarter of a house price right now. Then, the lending issues, also especially for small builders, that makes the majority of home builders. If the lending conditions are tight, it's hard for them to get financing. Yes, it's a [00:06:00] big-- The lot shortage, too, the availability of lots. When there is a shortage of lots, what happens is the lot value increase. Because of all these, the cost of construction has gone up. Affordability is at the lowest point right now in a decade. At NHB we measure that by the NHB WellsFargo housing opportunity index. That's at 57. What 57 means is only 57% of the new and existing homes are affordable to a typical family, and a typical family makes a median income of $80,000. Affordability is in the forefront for sure. Kathy: Are you seeing builders succeed at supplying affordable housing at this point? Danushka: Entry-level housing is hard to measure. An interesting stat to look at is that a house that the price below $30,000 for new construction. In August, it was around 30% of new home sales were priced below $30,000. Compared to 2019, there were 43% of new home sales were priced below $300,000. You can see that we don't have much affordable stuff right now. Kathy: Which is just going to maybe drive the price of existing homes up even more since new homes can't be built affordably. With all that in mind, the difficulty with builders getting homes complete, they might have some of the materials but not all the materials, and they can't get their CO until they have everything, including the appliances that they can't get. Sometimes the appliances [00:08:00] come and there's one little piece missing, and that's going to be another six weeks before that piece shows up. Delays, delays, delays. Again, builders have holding costs that cuts into their profits. What do you see the inventory situation looking like in 2022? Danushka: We are thinking for this year, single-family start to be around 1.1 million. Currently, existing home sales are only at 2.6 months supply. New home sales are at a balance at 6.1 months supply right now, but we have a deficit, a housing deficit. At NHB were estimated about 1 million. Plus, we calculate the 1.5 million [unintelligible 00:08:47] as well. Then [unintelligible 00:08:51] estimated to be 3.8 million housing deficit. NAR estimated to be 5 million. Regardless, everybody agrees that there is a housing deficit. Inventory is low simply because of that mismatch of the supply and the demand. The issues in the supply side is not going to be fixed right away. There's going to be a mismatch for demand-supply next year, too. Kathy: That could drive prices up further, do you think? Danushka: Yes. This year, we expect the home price is going to be around 15%. It's going to stabilize next year, around 5% growth simply because of the pullback from demand a little bit. Hopefully, there will be more turnover, essentially. Some people like move-up buyers, they're selling their starter homes and going to a bigger home. Hopefully, there'll be a little bit better inventory next [00:10:00] year and that should help stabilize the prices. Kathy: Again, it's so funny because it was just a few years ago that there was headline news that all these Baby Boomers were going to be downsizing and there would be this flood of homes on the market. I remember scratching my head and thinking these Baby Boomers aren't like seniors in the past. They're very athletic. Not all of them, but they have some savings, they want to stay at home. Especially after the last few years, they're not keen on going into nursing homes. We see people living longer. How did economists miss this? In other words, there was this concern that there would be a flood of homes on the market and it's just the opposite. Danushka: I think that shows you that we are not perfect in quantifying human behavior. [chuckles] I think the COVID-19 pandemic was really different to any economic situation that we've seen before. It was really hard to grasp what the economy is going to look like and also what the consumers and then the buyers and home buyers, what we really want, what everybody wants. You're right. Baby Boomers are not downsizing. We are seeing a demand for multi-generational homes now, so bigger homes and people are using their homes for more purposes right now. Young people are living with their parents longer and also on the remodeling expenditure side, I think our surveys are showing too that they demand for aging in place work as well. That shows that the Baby Boomers are actually staying in their houses without selling it and [00:12:00] downsizing it. We were expecting that the 55 plus, like [unintelligible 00:12:05] they would move to the cities or some communities. I think COVID-19 pandemic freaked everyone out. No one wants to live so closely next to each other, to other people. Everybody wants to live in their own house and [chuckles] be at arm's length. Kathy: If you're staying in a luxury condo and you don't get to use the amenities or you're stuck in an elevator with other people and-- Danushka: Yes, exactly. Kathy: There's a lot of changes that took place. Oh my goodness. We know that institutional funds are flooding to build to rent, building communities that are horizontal apartments because that's really what people want. They want a yard for their dogs and for their children and in case we just see variant after variant and we're all stuck at home again, they want to know that they've got a nice place to be. What is the impact of the build to rent? I've heard some people say we're really turning into a renter's nation. Would you agree with that? Danushka: Not really because build-for-rent share is still small. When you look at the single-family market, we think it's around 5% to 7% of single-family starts. [unintelligible 00:13:30] room to grow, for sure. There are larger estimates, but we use the census and the NHB serveys to compute our estimates. The single-family build for rent is a good solution for people who are not ready to buy yet, but who need additional room, more for their housing needs. You hear this on the [00:14:00] news a lot saying that everything's going to be build for rent. I don't think it's that. I don't think we agree with that to that extent. We think it's still a niche market, small market, could be rising but not to the levels, I think, what a lot of other people are estimating it to be. Kathy: Not making such an impact. That makes sense. Now, interest rates. That really could slow down things if prices are going up and then interest rates go up and the cost of a home, or I should say the mortgage becomes that much more, that could have an effect on the market. Do you anticipate that interest rates will rise next year? Danushka: Yes, we do. I think even in the recent weeks also the interest rates have gone up a little bit. We do think because the fed is going to tighten the monetary policy. I think 2018 was a really good example to see what happens when the interest rate rising. We saw a housing soft patch and slack conditions when the interest rates were increasing. Definitely, interest rates will rise, but it's still at historic level when you look at the rates that were in the '90s. We don't anticipate the rates going to those levels at all. Kathy: There was quite a bit of a slowdown for new home builders and that again has me concerned that it will exacerbate the problem. If builders are already squeezed on margins, what's the incentive to build? You're not going to build homes that you lose money on. If interest rates go up and therefore, the market slows down and maybe prices soften, there just won't be incentive to build more unless there's a way to build cheaper and maybe that's coming. Who knows? Maybe once we get past this supply [00:16:00] chain issue, prices will come back down and labor won't be so expensive and they'll be able to build more affordably at that time, but time will tell. Right? Danushka: Time will tell, exactly. [chuckles] I think it will be a good conversation to have next year at this time, to see not things have changed or if it has changed at all. Kathy: Oh, well. Let's see. You are the Assistant Vice President of Forecasting and Analysis. That's quite a job. Wow, that's a big job. Do you think there's any chance that we could be overbuilding? In other words, we do know that there's a really large cohort of Millennials turning home-buying age, but then what after that? Like, let's say 2050. If I went out and bought 20 homes today to rent out, would I be having trouble renting those out in five years? Danushka: I think that a good way to look at that is the population profile in the country. Millennials are the largest living generation. They make up 27% of the population. Then come the Gen Zs. Gen Zs are a smaller cohort compared to the Millennials. I think the Millennials are much like the Baby Boomers. Large cohorts makes big impact and the Gen Zs are something close to probably the Gen Xs. Now they're smack in the middle of large cohorts. I think the fall and also the falling birth rates as well across the country, that could mean lower housing demand in about 10 to 15 years. Not in the next five years, but I think the long-term. 10 to 15 years, we could see a slow down in the demand for housing. Kathy: Fascinating. Are there parts of the country that are [00:18:00] growing faster than others and where housing is needed more desperately than other areas? Danushka: Yes. I think the South is a-- Half of the home building takes place in the South. It's the weather. The retirement communities are a huge attraction for home building. The West has always had high demand for housing. If you think about it, we need more affordable housing on the West Coast. On the Western states, for sure, high population not much housing stock, so the house prices are rising much faster in that area, for sure, so we need housing and maybe even better zoning rules in those states. I think the larger states, the Southern cities like Atlanta, Dallas, Tampa, Phoenix, those are big market that we expect lots of growth in the next couple of years. I think also the telecommuting that people took on last year has also spread immigration to those large markets as well. We will see lots of demand for housing in those markets. Kathy: I don't know if you can speak to this question because it's very local, but I always thought it was strange that just two to three, maybe four hours out of San Francisco, there hasn't been a lot of growth. There's a lot of land in the Chico area in Redding and Oroville and we just haven't seen these retirement communities pop up the way we do in Arizona. Perhaps it's because of the tax laws. Maybe retirees would rather be in Arizona. If they're going to deal with hot weather, let's go to Arizona instead of Redding. I just found that interesting. When you say we should be developing the [00:20:00] West Coast, there's a whole lot of places on the West Coast that have not been developed and that are still pretty affordable, but just not of interest. Do you have any thoughts on that? Danushka: I could speculate a little bit. I would say California has different regulatory land development rules, probably compared to Arizona. That probably is a big factor with zoning rules. That could be a big thing. Also, who knows, maybe Arizona has everything retirees hope for. Kathy: Yes. If you don't have to pay state income tax as a retiree, that's a big bonus if you're on a fixed income, for sure. Danushka: Exactly. Kathy: If you're going to choose, you'd probably just go over the border. Go over to Nevada or-- Okay, Nevada or Arizona? I don't think Arizona has no state income tax, but I think it's lower, at least. Okay, well, that makes a lot of sense. Yes, I agree with you. The cost to build in California is so expensive. With our project in Dublin years ago, I think it was $120,000 just for the school fees and all the permit fees just before you can even get started on development. How do you create affordable housing in that scenario? Well, it's been really a pleasure to have you here on the Real Wealth Show. Any last thoughts for our listeners? They're mostly buy-and-hold investors. They buy properties and rent them out. Danushka: I think we are in a very exciting year. The last couple of-- 2020, 2021, the next couple of years, still very exciting for housing. We've never expected this amount of interest and demand for housing. I think it's just a matter of we sorting out the supply side issues in order to meet this rising demand. I hope we can rise up to the challenge. Kathy: Wonderful. All right. Well, thank you again so much for being here on the Real Wealth Show. I hope to have you back next year. Danushka: Thank you so much, Kathy. Thank you so much for having me. [00:22:00] Kathy: Thank you for joining me here on the Real Wealth Show. You can also check out new trends for real estate investors by joining our network for free at realwealthshow.com. As a member, you'll have access to our investor portal where you can view property proformas, and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, CPAs who specialize in real estate, and much more. When I mean much more, I mean over 500 webinars that are free, that will teach you the ins and outs of being a successful real estate investor. In return, all we ask is that you subscribe to our podcast and leave a review because it makes a huge difference for us in our rankings. I'm Kathy Fettke, and thanks for listening to the Real Wealth Show. [music] Speaker 3: The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to realwealthshow.com. [00:23:06] [END OF AUDIO]

What will it take to close the inventory gap for housing? A start-up in Nevada believes it has the answer with a unique, affordable, assembly line approach to housing. The company is manufacturing tiny homes for a tiny price tag that unfold for delivery and are move-in ready in about one hour. And, there are plans to go much bigger than just tiny homes. Hi I'm Kathy Fettke and this is The Real Wealth Show. Thanks for joining me and don't forget to hit the subscribe button for our podcast. In this episode, you'll hear from Galiano Tiramani, who's the Co-Founder of construction technology company Boxabl. He has a bachelor's degree in Business and has launched a few other successful start-ups, including one for cryptocurrency and one for cannabis. His latest endeavor began with an idea from Dad several years ago, and is now poised to shake up the housing world with a 375 square foot pre-manufactured "casita" that is folded up for delivery. It's even caught the attention of Elon Musk who reportedly lives in one, although Galiano was "mum" on those details. Check out this interview for a peek into what could be a new trend in residential construction. You can also check out new trends in real estate investing by joining our network RealWealth, for free, at realwealthshow.com. As a member, you'll have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! Disclaimer from Boxabl: BOXABL IS CONSIDERING UNDERTAKING AN OFFERING OF SECURITIES UNDER TIER 2 OF REGULATION A. NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED, AND IF SENT IN RESPONSE, WILL NOT BE ACCEPTED. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE OFFERING STATEMENT FILED BY THE COMPANY WITH THE SEC HAS BEEN QUALIFIED BY THE SEC. ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME BEFORE NOTICE OF ACCEPTANCE GIVEN AFTER THE DATE OF QUALIFICATION. AN INDICATION OF INTEREST INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND. A COPY OF OUR PRELIMINARY OFFERING CIRCULAR MAY BE OBTAINED HERE, https://www.sec.gov/Archives/edgar/data/1816937/000109690621000494/box_1aa.htm TRANSCRIPT Announcer: [00:00:00] You're listening to The Real Wealth Show with Kathy Fettke the real estate investors resource. Kathy: What will it take to close the inventory gap in housing I'm Kathy Fettke and welcome to The Real Wealth Show. Our guest today thinks he's got the solution. In this episode, you'll hear from Galiano Tiramani who's the co-founder of the construction technology company boxabl. He has a bachelor's degree in business and has launched a few other successful startups. His latest endeavor began with an idea from dad several years ago. It even caught the attention of Elon Musk. It's basically a 375 square foot pre-manufactured casita that can fold up for delivery. Galliano welcome to The Real Wealth Show . I can tell you that our team is really excited to hear what you have to say, because I think everybody wants to run out and buy a $50,000 box all. Tell me what boxabl. Galiano: Thank you so much for having me. My name is Galiano Tiramani, I'm one of the founders of boxabl and they are houses. We are setting up a big factory to mass produce a different type of housing. Kathy: Well, and you've already had some really good publicity from one of the best marketers in the world. I did read that Elon Musk is living in a box bowl. Is that true? Galiano: That's the rumor. I cannot comment. Sorry. Kathy: You can't comment. Well, that would be quite a change if true living kept going from a few mansions into-- How much square footage is in a typical boxabl. Galiano: It's been cool. We've gotten so much press on that. A lot of people have become aware of the product. Essentially what it is, the first product [00:02:00] that we're starting with is a 400 square foot house. It's about 20 feet by 20 feet with nine and a half foot high ceilings. It's got a kitchen bathroom, a bedroom, and a couch. We are planning to retail it for $50,000. One of the cool things that everyone notices, if you want to go to boxabl.com, is that the house actually folds up. The reason it folds up is so that it can ship more affordably because that's one of the big reasons why most houses are not built in the factory. Most of them are built on site. It's very slow and expensive and cumbersome to build something on site, by hand in kind of a custom manner, well, versus everything else, all the other modern products that are mass produced in the factory. The reason that, we are still building houses on site instead of on an assembly line is they're just so big, so they're hard to ship. That was like the first problem that we had to solve here to make it compatible with the mass production factory assembly line. Kathy: Basically, someone orders it and it's brought in a truck and you just unfold it. How does that work? Galiano: We spent a lot of time making things really simple. We've got the bulk of the work done for the building in the factory. Really all you need on site is, some type of foundation. Actually, you don't need a foundation, but in most cases like the local government's going to require it. You're going to need a foundation and you're going to need some utilities, connection, water, electric whatever. Essentially, our unit shows up gets, placed on the foundation. It unfolds the floor comes down, the walls come out, they all lock into place. They connect to those utilities that are ready prepared on site in advance, and you're done and you have a house and that means kitchen, bathroom [00:04:00] flooring, electrical air conditioning, all of that's done at our factory before it arrives on site. You go from maybe seven, eight months to build a house to an hour to build a house. Kathy: Oh my gosh, that's incredible. All right. Zoning appears to be changing in California, allowing residents to potentially subdivide their property, and put another property on there. Are you seeing an uptick in phone calls because of this? Galiano: Well, just because of the good marketing we've done from the beginning, we've always had crazy amount of phone calls and interest-- Kathy: Good for you. Love it. Galiano: The way things are going in California is very friendly towards what we're doing. It actually started before-- What you're referencing, I think is a new law that just came into effect like last week that Newsom signed, but there was even some before that, that have all been great for us. The first one was accessory dwelling units. They basically legalized accessory dwelling units in almost every backyard in the whole state. Accessory dwelling unit just means an extra house on the same property. Usually it's like a granny flat, just a small house and people want to do that because, you have a site that's already developed a lot that's already developed. You have a backyard, and if you can just throw down a little apartment, little house there, the numbers really crunch for rentals. Maybe they want to put their family members in there. That's been really big one. That's why we decided to start with the Casita product because our grand vision is a building system where different size room modules will stack and connect. The first one that you see on the website is 20 feet by 20 feet. We can also do 20 by 30, 20 by 40. We can do bigger modules with different configurations inside. Maybe one module would be a kitchen only, one would be a bedroom only. Then you can start stacking and connecting and arranging them [00:06:00] to build, hopefully, almost every building type on the planet, a thousand unit apartment building down to this little Casita. We thought, how do we start? Let's start with the smallest room module targeted towards backyard ADUs, California incredibly friendly towards that. They've done things like prohibited the local governments from blocking people from building these. The state has said to the local governments, you must allow the backyard units, they've reduced setback requirements, a whole bunch of different stuff. Then last week, or so the new rules that they've done now go even further. Now they're letting people, I think subdivide their lots, and do all different stuff. It's pretty good timing for us. Kathy: I'm in the coastal commission area and I think that there's still certain parts of California where it's going to be tough to get this through, but I'm not sure. Have you heard anything about that if you're closer to the coast? Galiano: I don't know too many details on it. All I know from my perspective is there's so much demand for housing all over and so much need for it. Kathy: Yes. Galiano: I'm good to go. I think everything we make in this factory will sell out and we'll just be looking to scale. In general role, the attitude towards increasing housing availability is very positive, people want to do this. They want to open it up and that's why these new laws are happening, not just in California, but elsewhere around the country. Kathy: Does your team work on the permit side of it or does that have to be done by someone else? Galiano: Our goal is just to be the manufacturer of the remodule and to sell that to builders and developers, to speed up and simplify their process, get all the heavy lifting done for them. We will have resources on our website where people can get help with permitting, they can get help with financing and they can get help with finding a contractor to do whatever it is, want to do with the building [00:08:00]. Then we'll just focus on cranking out these remodules and they'll usually be a contractor in between us and the end user who helps with the setup and the permits and all that. Kathy: Okay. Are they customizable? Galiano: Yes and no. Especially early on, we want to be very standardized and have this very repeatable product so that our manufacturing is efficient. You can definitely customize them when they get to the field. Eventually when we have these different modules that connect together at that point, we have endless configurations. If we had 20 different rooms types, and then you start stacking connecting them arranging them, you can get for the most part, a huge range of buildings. Kathy: Okay, so let's say I wanted a bigger window, I could carve that out and do it on my own. Galiano: Yes. The contractors who install the unit should have no problem doing that. One cool thing about the way our actual buildings work is our innovations go beyond the shipping solution. We've also picked all new building materials and manufacturing methods. These are not lumber frame houses like you would see traditionally in North America, They don't use pieces of wood and nails. It's a eliminated panel system, and that has many benefits, but one of the benefits related to what you just said is you can actually just cut a hole anywhere on the wall anywhere you want any shape and not worry about anything. Kathy: That's amazing. Wow. Well, obviously we know that lumber prices have were insane and then they drop back down. Were you seeing those kinds of issues on your materials? Galiano: It's been really crazy time, especially starting a manufacturing startup, all kind of supply chain issues. I think the lumber one was little bit tricky because it was more about like a [00:10:00] future speculation and trading so it was just a spike, it went up and down but overall, everything is going up. There are delays everywhere, now you see manufacturing issues with many major companies. We have been buying all kinds of stuff to build hundreds of houses and had a hard time getting it. A shipping container from China has gone from 2,000 up to 10,000 or maybe even more. Pretty much every single supplier we have has hit us with price increases and it's just total madness. I don't know what happens, but I believe that boxabl is more well-equipped to handle it than others because everyone is buying the same stuff for the most part of it. We enjoy these other efficiencies and benefits by being in the factory and having the simplified product design, we produce components and be able to purchase things because we're building at scale and using automation and using low skilled labor and having an assembly process. We believe that all those principles put us ahead of everyone else who will be still buying the same piece of steel or toilet or piece of wood. Kathy: I know that in LA there's been initiatives to provide housing for the homeless and the first round of houses it's my understating costs hundreds of thousands of dollars. Have you had cities reaching out for that purpose? Galiano: Oh, yes, I heard about those sheds that they put up that were like 200,000 each or something. [laughter] Galiano: That's pretty hilarious. Kathy: Awful. Yes. Galiano: Another story of government waste. We definitely have had a huge amount of inquiries for every use case under the sun. We've had inquiries from many, many different types of governments all over the place. In fact, our first customer is the government for [00:12:00] military-based housing. I think the grand plan for us is a very big scale. This first factory, that I'm sitting in now, it's at 170,000 for building. It should be able to produce several thousand houses per year, but we need to go way past that with a way bigger factory after we approved the concept here and hopefully being able to supply that quantity of houses brings the price down for everyone and makes a big impact. On the homeless side, it's pretty complicated. It's not really about housing, housing is a component there, but there's more issues surrounding mental health and drugs. Kathy: Of course, yes. Well, so you're sitting in your factory in Nevada? Galiano: Yes. We are in City of North Las Vegas. We have a 170,000 feet building. We moved in here maybe a month ago after spending several months, setting it up. Now we're rapidly hiring people. Actually, the first house is just moving down the assembly line right now, so that's a very, very exciting milestone for us. Kathy: Oh my God, it's so exciting, so our audiences, mostly real estate investors, but a lot of business owners too are-- Tell me about how you got here with a concept. There's so many of us who are visionaries, and we got great ideas but man, making those ideas [laughs] come true is a whole another process, so how did that start? Were you all sitting around, having a glass of wine and somebody said I want a folding house, I mean [laughs] whose idea was it? Galiano: Well, it's been a pretty, pretty crazy journey and pretty quick as well, but basically back in 2017, I was actually living in California, my father had just moved to Vegas and there is another guy Kyle. My Father had the idea for the folding house [00:14:00] many years before when he built a traditional modular and experienced problems with the wide load shipping where it was just so ridiculous and didn't work at all, it was not scalable, and so he had the original idea to fold the house up. Then in 2017, I said, "Hey, what about that folding house idea?" Because, as usual, I was just looking for ideas and businesses to start and stuff. Then we just dove in and started developing it again and started exploring what the problems were in the market. We build a little website and started doing research and testing and development and engineering, and it just got more and more attraction and eventually, we got invited to go to the Builders' Show, which is like a trade show, one of the biggest ones. We got invited to bring a house to put outside at what they call show village where they have modular houses outside. We sat down and said, all right, "Well, we haven't built anything yet, we just had a bunch of drawings. Can we do this? Shall we commit to it?" and we said, "Yes, let's do it," and pulled the trigger and agreed to do it and then build the first prototypes, went to the show and from there just kept going and going and now we're sitting in the big factory and it's happening. Kathy: That's just so incredible. That's a whole new learning of okay- you learn how to create the product now you got to learn how to hire people and [laughs] everything that goes into that process. Galiano: Yes, definitely. Kathy: Good for you. Once you went to the Builders' Show, you had an initial investor to help you with that prototype? Galiano: No. Paulo funded it. It was several million dollars, basically getting us through the RND and to the point where we had [00:16:00] a product that we thought was ready to sell and manufacture. That came a year after we got invited to go back to Builders' Show. At the first show, we went with a big house, like a big 1400 square foot house. Then we said, "All right, what is the good, better place to start?" and we came up with, "Let's start with the smallest unit we have." Then next year we went back to the show with those prototypes and said all right, we're ready to do it, Let's do a factory and then started raising money. Really the way I raised money was all through general marketing. Sending web traffic to the website and allowing people, anyone, creditor investors to invest through the website. We've raised all the money to date through that method and it's basically through the last year, we've been raising money and that's got us here to this very big factory. [crosstalk] Kathy: Oh my God. You didn't have to bring in an institutional investor who takes control of things. Galiano: I've had many discussions with guys like that, and I still do, and often exactly you said, they ask for too much. We love the strategy we've used because we're still in full control ca, we're calling all the shots, and we now have an army of supporters, cheerleaders who are our investors and hopefully we'll do very well also. It's a really, really great strategy. I'm sure those institutional investors will come into play eventually and hopefully when they do, I'll have much more leverage to shop around and get a better deal. Kathy: Oh, yes. Good for you. It's like a five or six C kind of offering. Galiano: Exactly. Kathy: Right, I'm curious because do see indications too, is it sort of a note or convertible note, or? Galiano: Well, it is a note, but really, it's a fixed share price.[00:18:00] The reason it's a note was just as a way to discount the share price, and you can read more about it on the website. The plan of the company is just to eventually IPO, so really we're really just selling shares to people and then hopefully we're very successful and then eventually get liquidity at a higher share price when we IPO. Kathy: Wow, wow. I'm so thrilled I got to talk to you before that happens [laughs] It'd be pretty a lot harder to get you on the show afterwards. Galiano Tiramani, it's just such a pleasure to have you on The Real Wealth Show. I'm certain there will be a lot of our investors calling you to figure out how they can get one of these in their backyard or build a whole subdivision of them, who knows, but very exciting. All right, thank you so much. Any last comments, any tips, or places that people should find out more about you? Galiano: Yes, they can definitely go to boxabl.com, B-O-X-A-B-L.com, check out YouTube, we have lots of videos on there, social media, we do a lot of on-going updates. People can also email me directly if they want to, it's g@boxabl.com and also the general inbox hello@boxabl.com and we'll reply pretty fast. Kathy: Great. Once again thank you so much for being here on The Real Wealth Show and we wish you the greatest of success. Galiano: Thank you for having me. Kathy: Thank you for joining me here on The Real Wealth Show. This is an exciting time in history with so much new technology coming down the line and we'll keep you posted here on The Real Wealth Show and on my other podcast will Real Estate News for the investors. Have a great day. I'm Kathy Fettke and thanks for joining me. Announcer: The views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider [00:20:00] any investments or course of action. For more information go to realwealthshow.com

Low interest rates? Rising rents? Strong appreciation? But still feeling anxious about buying your first rental property? In this episode, you'll hear from someone who may help reduce that anxiety. Yianni Garcia is a mortgage broker who was aware of the opportunity presented by low interest rates and a strong rental environment. And he knew that he wanted to become somewhat semi-retired in five to 10 years. But spending a large chunk of hard-earned cash is not easy. So he dealt with his investing anxiety by educating himself. He joined RealWealth in 2019, started pouring through webinars, listings, and pro-formas, and bought his first single family rental just last year. In this episode you'll hear more details about his RealWealth story, including where he's purchased his properties, why they were such great choices for passive income and appreciation, and what his plans are for the future. As a mortgage broker, he also has lots of great information about loans for investors. You can fast track your own retirement plan by joining RealWealth, for free, at realwealthshow.com. As a member, you'll have access to the same educational material that helped Yianni. That includes the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! TRANSCRIPT [music] Speaker 1: You're listening to the Real Wealth Show with Kathy Fettke, The Real Estate Investor's Resource. [music] Kathy: 3.25% interest rates for investors, rising rents, rising home prices, but you're still feeling anxious about buying investment property? I'm Kathy Fettke. Welcome to the Real Wealth Show. Our guest today is going to share how he was able to get through the anxiety that most people feel when they're about to embark on something new, especially when that something requires a very large amount of cash. Yianni Garcia, like many young people, doesn't really want to work until the typical retirement age of 65. He wants a better plan that allows him to be able to spend more time with his future children. As a mortgage broker, he saw the opportunity to take advantage of today's very low-interest rates and very strong rental environment to buy, refi, and then buy some more in order to build a large portfolio that will speed up the path to be somewhat semi-retired in 5-10 years. Well, Yianni, welcome to the Real Wealth Show. We're so excited to hear your story. Yianni: Thank you for having me. I'm so excited to be here. Kathy: Let's start with what brought you to real estate, to begin with? Yianni: Sure. I am a fairly new investor. I started investing in 2020, and I attended-- Kathy: Wow, what a year to start. Yianni: [chuckles] I know. My timing was very lucky, I would say. I feel very blessed about that. My very good friend Zeona McIntyre invited me to a Real Wealth network event in the fall of 2019 in Jacksonville. That's where we met. I got exposed to so many people in the network. It was like a crash course of 20 plus different markets. That's really where the lightbulb went off. I said, "Okay, I really want to stay tuned in and see where I can find my first investment property." After I did that, [00:02:00] I started just every week, tuning into webinars and reviewing listings that I would get from different agents within the network. I finally settled on a little 100-year-old brick bungalow in the south side of Chicago. It's a section 8 property. Initially, I was-- it was my first investment property so to buy something that was so old, although I had been gut-renovating in 2016, and what attracted me to that property was just the high level of the cash on cash return. When I first got that inspection report, 40 pages on it, I'm like, "No, I can't do this. This is way too much for me." Kathy: You didn't buy it or you did? Yianni: No, I did. I did Kathy: You did? [laughs] Yianni: I did. Kathy: What got you to buy it after seeing the inspection report? Yianni: Well, I spoke to Leah and she's like, "Listen, you're getting the home for an incredible price. A lot of the things in this report are quite cosmetic and you can actually, since you offered asking price, this could be a good position for you to negotiate for those things to be fixed." She coached me through how to have that conversation with the seller. They agreed to have a 95% of everything on that list. Kathy: Wow, amazing. Yianni: We did a second inspection. Everything's cleared. I've been income-producing with that property since August of 2020, it's when we close. It's been great. The returns are incredible. All my cost is about $700 a month, and I make $1,600 a month on that property. Kathy: What? Yianni: Yes. [laughter] Kathy: Leah is a fantastic coach. Wow, that's amazing. Good for you. What a slam dunk. That is a scary first investment because Chicago doesn't have the friendliest landlord laws, their taxes [00:04:00] can be high, they've got some issues with their pension funds. They're in the news a lot. An older home, it's like buying an older car. It's not a new car, so things can break down unless they've been replaced. Even sometimes with an old car, when things have been replaced, they break down still, so that was definitely risky so I'm really glad to hear that it has turned out well for you. Do you think the values have gone up since you bought it considering what's been happening nationwide? Yianni: I think they have. One of the things that attracted me to this property was the rental income. I knew that with such a high level of rental income, my expectations on appreciation were less for this specific property. What I will say is that initially, I was very hesitant about section 8 because you have preconceived notions of what that means and is it going to be difficult tenants or whatever, that bias that I had before I went into it. What I found was that it was actually a brilliant first investment because it's guaranteed income. If the tenant loses their job or gets sick or gets COVID, for whatever reason, they can come up with their portion of the rent payment. The housing voucher kicks up to 100%. Also, I never get a late payment because the housing voucher that they received, whether it is 70% or 80% of the rent, is dependent on them putting their 20% or 30% on time. It's just a recession COVID proof investment. I wish I could say I had the foresight to do that. It was luck, in many ways. That felt really good and safe as an investment. I did for my second property, which I bought a few months later, I bought it in Ocala and it was a new field-- Kathy: That's in Florida, for those who don't know where Ocala is. Yianni: That's in Florida, yes. Ocala, Florida. Kathy: It's a little town in Florida, but it's growing and you probably will learn about it soon enough because it's growing quickly. Yianni: It sure is. [00:06:00] That team calls it the corridor of progress because they refer to all the manufacturing and healthcare systems and all of the blue-collar jobs that are coming into that part of Central Florida. I bought there. The rental income, although was still very attractive, was less, but I had higher expectations for the appreciation. What I've seen in terms of appreciation there has been remarkable. I bought that property for 136, a 3:2, one-car garage. Kathy: $136,000? Yianni: 136. Kathy: I just want to be clear, because some people when you say 136, they don't know what you're actually saying, because that's a very low price for a new home. Yianni: A new home, yes. Kathy: A new home? [laughs] Yianni: I snuck the last of those-- Kathy: You sure did. Wow. Good for you. I'm a little jealous. Yianni: I feel really lucky on that one, too. At a price over $200,000 recently and this is a loose appraiser. I use a tool called Homebot to keep track of the value of my home as the equity grows. Yes, it's around $200,000 now. I closed in February. Kathy: Good for you. Wow. Good for you. Wow. That's amazing. That's amazing. It really comes down to value, right? People will live in fear often, myself included, that "What's coming? What's next? Are we at the peak? Prices have been going up for over 10 years, what's next?" and it can be paralyzing. When you remove that fear, and maybe you didn't have that fear, and you just look at the asset alone and forget about all those distractions, a $136,000 house in Florida and an area that's growing, the chances are pretty good. It's going to be fine, no matter where the market is headed. Yianni: Absolutely. No, I couldn't agree with you more. Listen, I think the money that I have in the market has done really well. [00:08:00] When I talk to investors, I'm a loan officer by trade, and so when I talk to real estate investors who are on the fence about, "Well, do I buy a home or do I keep my money in the market where it's doing so great?" I think both strategies are good. I think having a diversified portfolio where you're doing both, is really where you want to be because now, I have income-producing properties that are appreciating and I also have my portfolio, which is doing great. There's a certain comfort that I get from knowing that I have my hands in different areas and I have things that are building wealth, not just in one bucket. Another thing that I think about, unless you've done-- If you're a new investor, this may not be as obvious, is how you can leverage mortgage financing to scale your real estate. A property that I bought for $136,000 that appreciated so much over the span of less than a year, I can pull equity out of that home to fund my third and fourth real estate investment. Creative ways of using a cash-out refi to then fund future investments is a way that you can start scaling this. For new investors, that doesn't immediately click sometimes, you have to walk them through what that possibility looks like. Kathy: I started in this industry in mortgages too and I will say that is a great place to start. Well, anywhere is a great place to start. If you start in title or as a real estate agent or in mortgages, you learn things that a lot of people just don't know, I certainly didn't know before. When you learn leverage and come in from that angle, and are able to see all the options that most people don't know about, just the one very simple one that you can get 10 investment property loans backed by the US government. At ridiculously low [00:10:00] rates. What kind of rates are we looking at right now on investment properties? Yianni: Rates are still at historic lows. We're starting to hear and feel like there's going to be in the next quarter and two quarters, we're going to see a bit of an uptick, but rates are still in the low 3s for conventional investment properties. Kathy: What? I should know this, but I just can't believe it. Okay, I got to go get some loans. [laughter] Oh my gosh. Yianni: I have clients that perhaps can go the conventional route and get a conventional investment loan. Even non-QM products or unconventional lending products, they may not have their personal income to be able to qualify for investment property, but we can use the future income projections of the property that they're purchasing to qualify them. Those are alternative or non-QM products. Those products typically have higher rates, but even with those types of products, we're seeing low and mid 4s. Kathy: For a fixed rate? Yianni: Fixed-rate, yes. Kathy: Oh, come on people listen to this. This is-- non-QM, again, to just break that down for people who don't know loans, that's a qualified mortgage, so what's a QM versus a non-- what is that? What's the difference? Yianni: Sure. A qualified mortgage or a conventional mortgage would be something like FHA or conventional, which are government-insured. Those loans typically carry lower down payment requirements and they carry lower interest rates. I would say those are the most affordable and most popular ways of investing. Those are the most popular products, but let's say they do require your personal income, so your W-2 income or your tax returns are of a certain amount, you have a debt to income ratio to qualify for those loans. Let's say you don't have that income, but you still want to invest, you have good credit and you have cash, [00:12:00] You can use a non-QM product or an alternative product to buy an investment property. What we use to underwrite that loan is the future projection of income from the property that you're buying. If the bank, if we can project, "Okay, this home is going to make enough to cover the debt," then we can use that to qualify you for that property. The down payments for those, they're dependent on credit score, but we can get them as low as 15% Kathy: 15? Yianni: 15. Yes. Kathy: Wow. Wow. Our investment counselors are just so good. They're the ones who are all over this stuff. When you join Real Wealth and you talk to one of the investment counselors, they are not surprised by this information because they know it. I have been busy with syndications and other things and I haven't honestly paid attention to some of the lending. I still have more loans I can get because we're in mostly commercial loans at this point. Now you've got me fired up. Yianni: It was not common. You typically see the alternative products, they do 20, 25% minimums, so I happen to be with one of the largest independent lenders in the country so our product portfolio is just huge. Kathy: Amazing. Oh, that's so good to know. I'll make sure that our investment counselors know that you can maybe offer some of these services to our members. Let's go back to your investing story. You started in Chicago. You bought an older home in Chicago, a more tenant-friendly city. That's worked out. Then you went bought a new home, complete office. Complete opposite. Brand new home in a more landlord-friendly area of Florida. It's gone up tremendously in value. These are two very, very different products and very diversified. One is high cash flow. One has been very high appreciation. They're probably both appreciating and they're probably both cash flowing. Just one is cash flowing more, one is appreciating [00:14:00] more, very good diversified portfolio so far. Did Leah coach you on that or was that just a gut feel you had? Yianni: No, Leah was instrumental in all of this because as a new investor, I just didn't know what I didn't know. It was just always great to have that objective third party. She'll tell me-- she lays it down how it is. If there's something that doesn't look good, she'll tell me, "Hey, that doesn't look good for this reason." I was able to build trust with her very early on and feel like I had a really solid coach, even when some things went wrong and things were unexpected or whatever the issue was. She was a great partner. Kathy: That so great. If you don't mind me bragging a little bit about our incredible investment counselors, because they are all investors themselves, we have always wanted to make sure that they were coming to their coaching with no strings attached so to say. A real estate agent is looking at commissions for the most part. I didn't want our investment counselors thinking about that. I wanted them to just look for the best investment so they're just on flat salaries. They don't gain or lose anything by referring to different opportunities for you. They just are really looking at what's best for you. I love that. What's next? Yianni: That's a good question. My partner and I, we live in Miami Beach and we have a beautiful condo that we rent. Some people are like, "Why did you rent your primary home and then own investment properties?" That was by design. We just felt for our primary, we want to have something at a much higher price point and so I didn't want to sit on the sidelines until that moment came. I wanted to invest and start building wealth leading up to that. I think for us, the next step may either be, we may want to do another year here because we just love Miami Beach and the condo that we live in and do another investment property [00:16:00] in the meantime. Then in 2022, buy a home here in Miami. Listen, I think for us, for gay parents, it's very expensive to have children. That was a big motivator for us, for investing in real estate. We knew that the service (family planning/adoption) runs for about $150,000 per child. It's a big number and we knew we had to build things now and put them in place so that we could be able to family plan two to three years down the road. That was the motivation behind it as well is, what can we do now? We have our W-2 income, we have our careers, but what can we do with our assets so that two to three years from now when we're ready to have children, we can start that process. That was a big motivator for us. Kathy: Beautiful. I was going to ask what your why is and that's it. If you don't have a clear why, then it's just a process of buying houses and renting them out. You've got to know why you're doing it. Yianni: That's true. That for us. When the kid comes, it's not just the investment that we have to make to get there. I'm very jealous of my straight friends that don't have to think about that. [laughter] I always tell them when they're complaining how they're stressed out about their kids, I'm like, "Well, at least you didn't have to go through that whole process." Kathy: Yes, you might be stressed that your partner is pregnant, but you didn't have to pay for it. [laughter] Yianni: Yes, exactly. It's a whole different-- It's emotionally very intense too. Another part of it was when the kid comes, I want to have the freedom to be able to pick him up or her from school at 2:30 and be able to take a step back from the traditional 9 to 5 and have a little bit more freedom. I do see real estate as a path to that, to be able to be more of a full-time parent and have my business be secondary. Kathy: Awesome. [00:18:00] Do you plan on sticking with Florida or are you going to diversify further? Yianni: I love Florida. For me, my properties I get emotionally attached to them. It's like they're people. I have my old lady in Chicago and I have my baby in Florida. I think Florida would be something I want to explore. I have experience doing short-term rentals. I started doing Airbnb in 2011, so I've been doing it for about 10 years and I switched more to the property management side of it, so I help other people monetize their luxury listings on Airbnb and Vrbo but I want to be able to do that for myself. I'm thinking that's an area that I'm interested in, is figuring out where I could buy more of a luxury property, a single-family home. Or maybe in St. Petersburg or Panama Beach, or some of these areas that have a lot of regional traction year-round for travelers. Kathy: Yes. I love that. I know that some of our teams provide those rarely, but they do come across them. When you go with luxury, you have a bit less competition because generally, the institutional investors aren't looking at those. Yianni: Sure. That's a good point. Kathy: As a final tip, what would you say? You've obviously made some really good decisions. What kind of tips would you give to new investors? Yianni: Well, I would say stay educated, I think it's important to tune in and consume as much of the information that's coming from the network because the information is there. It's up to you to register for those webinars, sign up to receive pro formas and listings, schedule meetings with your investment advisor to ask questions and not be afraid of asking dumb questions because that's the only way you're going to learn. I think, that for me was number one, is just educate yourself, carve out an hour or 2 hours, 3 hours a week to do this because the people who say they're too busy to [00:20:00] learn how to invest or how to find a property, I worry about that because if you're too busy to invest time in something that's going to ultimately afford you your financial freedom and your independence, then you are basically a slave to whoever you're working for or doing. You really have to carve out time to do the things that are going to help you retire early or achieve your dreams, right? I think having that discipline, even if it is an hour a week, doesn't take a lot, but educate yourself and leverage the resources to do that. At the same time, I think not be so afraid to pull the trigger. I think that first investment property is always so scary because so much of your savings are going out the door, and there's so many potential unknowns. Once you do that, you take that first step, you make that first investment, and you get that first rent check, and you see that first proof of income, you're like, "Wow, I have an emerging business. This is something I can scale." That becomes very inspiring, but you have to take that first step. Kathy: Yes. I'll tell you another thing that I've been enjoying is looking at my loan pay-down. Something I hadn't done before because I didn't hold the loans long enough usually, but now I look and I'm like, "Oh, my gosh, look at all this equity we've created" just from paying down that loan, not even including the appreciation and everything else. All right. Well, it has been such a pleasure to have you here. And I think you're going to inspire a lot of people in their acquisition process. Yianni: Thank you. I appreciate that, Kathy, and have a good day. Thank you for having me. Kathy: Thank you for joining me here on the Real Wealth Show. We would so appreciate it if you would subscribe and leave a review, you'd be surprised at how much that helps our rankings. We really, really appreciate it and I read them all. You can do that on iTunes or whatever podcast player you use. Thank you so much in advance. In return, I want to make sure you have access to lots of free education and information that goes beyond the Real Wealth Show. You can get that at realwealthshow.com, where we go much more in-depth on these topics. Just click on the Learn tab [00:22:00] and learn all about the ins and outs of financing, asset protection, tax benefits, and so much more. You can do that at realwealthshow.com. Speaker 1: The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to realwealthshow.com. [00:22:31] [END OF AUDIO]

Home prices have been going up, up, up, and there are some worries about whether they might come crashing down, like they did in '08. But those "bubble worries" might not be warranted this time around. In today's episode, you'll hear from California mortgage broker Michael Ryan. For more than 30 years, he's provided loans for residential, commercial, and small business clients, and he's seen it all when it comes to the real estate market. He offers some lively discussion in this interview about home appreciation fundamentals and what to expect in the coming months. Join RealWealth today at realwealthshow.com to find out how to build wealth with new and renovated single-family rentals. Membership is free, and will give you access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. You can also read more about why we are not in a housing bubble in a blog post here at realwealth.com And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you!

Real estate investing can be expensive when you go it alone, but investing with a partner might not save you money if you don't anticipate what can go wrong, and get it all down on paper. And there's plenty that can go wrong including very expensive lawsuits. In today's episode, you'll hear from a real estate attorney who is passionate about this topic. Jeff Lerman calls himself "The Real Estate Investor's Lawyer" because he not only understands the legal side of real estate, he also understands the business side as a real estate investor. He'll explain the difference between joint ventures and syndications, when and why you should talk to an attorney who knows about real estate, and how a well-written agreement can help prevent future problems and preserve relationships. Jeff is co-founder and partner at Lerman Law Partners, which is based in Marin County. He's listed as one of the "Top Attorneys in Northern California" by San Francisco magazine and helps investors nationwide with their transactions. That includes entity formation, syndications, joint ventures, purchase and sale agreements, and the preparation of loan documents. His credentials also include President of the Marin County Bar Association and Northern California Super Lawyer (top 5% of lawyers). Join RealWealth today at realwealthshow.com to find out how to build wealth with new and renovated single-family rentals. Membership is free, and will give you access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you!

Wondering where's the best place to own real estate over the next decade? Follow the demographics. When Rich and I started buying properties out of state in 2004, we chose Dallas, Texas because it was one of the fastest growing metros in the country. We paid between $120,000 to $140,000 for brand new homes in Rockwall, Texas that rented for $1,300 to $1,500 a month. Those homes have since tripled in value. Where can you find that kind of opportunity today? Stick with the same fundamentals and follow the demographics. Economists predict that Florida will add 1.4 million new residents by 2025. Developers are trying to keep up with demand, but can they build fast enough? It's pretty tough these days. As a result, both home prices and rents are on the rise. In this episode, our guest represents a trusted RealWealth property team from the Tampa area, and he's here to give us an update on what's going on in the Sunshine State. You can also take a deeper dive into the Florida market by listening to a webinar with our Florida expert. Simply join RealWealth, for free, at realwealthshow.com and log in to the investor portal to hear the replay. As a member, you can also view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! TRANSCRIPT [00:00:00] [music] Speaker 1: You're listening to the Real Wealth Show with Kathy Fettke, the real estate investors in resource. [music] Kathy: Are you wondering where the best place to own real estate is over the next decade? Well, follow the demographics. I'm Kathy Fettke and welcome to the Real Wealth Show. When Rich and I started buying properties out of state in 2004, we chose Dallas, Texas because it was one of the fastest growing metros in the country. We paid between $120 and $140,000 for brand new homes in Rockwell, Texas. The rent in for about $13,000 to $15,000 a month. Those home have since tripled in value. Where can you find that kind of opportunity today? Just stick with the same fundamentals and follow those demographics. Economists predict that Florida will add 1.4 million new residents by 2025. Developers are trying to keep up with that demand but can they build fast enough? It's pretty tough these days. As a result, both home crisis and rents are on the rise. Our guest today is one of Real Wealth's trusted property teams based in the Tampa area. He's here to give us an update on what's going on in the Sunshine State. David, welcome back to the Real Wealth Show. So good to have you here. David: Kathy, it's a pleasure. It was amazing to be added on your amazing house guest quite recently, so it's good to see the recording studio once again. Kathy: For our listeners, once or twice a year, it's usually twice a year, we bring all the property teams that we work with nationwide together in a mastermind. Even though they're technically competitors, they share their best practices and how to find more inventory for our members and they really act like one team, like they're on the same team for the benefit of our Real Wealth members. I'm glad you mentioned that. It was great to see you and be able to see each other in person. David: It's absolutely invaluable. I really love everybody. I mean that sincerely. I just [00:02:00] love each one of these teams. I love their sincerity. I love their professionalism. As we said at the time and I'll say it again, it's always an honor to come out and be part of such an elite group of people. Kathy: Aw, I appreciate that. I don't know when it happened. It seems like it was maybe five years ago when one of our teams said, "I want to be more involved with whoever is part of the Real Wealth Network because whatever they do reflects on me and I want to make sure everyone is at the top of their game." David: That's right. Kathy: We all have solutions and answers. We should be sharing that and not having one team learn the hard way, something we just learned right. David: That sounds vaguely familiar, Kathy. It may even have been me at the time [unintelligible 00:02:42]. Kathy: It might have been you. [laughs] David: It makes life so much easier when the same standards are being upheld to regardless of the market that you're in. Again, creating that standardization across Real Wealth Network groups has been amazing over the years. It's been amazing to watch our great results as well. Kathy: Aw, that's cool. Anyone new to Real Wealth and what we're talking about here, we are an educational company. We teach people the ins and outs of owning rental property. Then we are a referral business as well referring to companies nationwide who help investors build a portfolio by finding them the properties, renovating them if needed, working with builders. Obviously, those properties don't need renovation but they better be in good areas and they better be good builders. There's not always good builders out there. Then offering the on-going property management to really take care of people who are buying investment property out of state. We have about 15 teams. Everybody's standards were different 10 years ago. Tampa is going to have different standards than, say, a property in Ohio because of different weather, you have different different laws. Some of the basics need to be standardized across the board, and that's what you guys created together. You were demanding excellence from each other, that [00:04:00] took the pressure off of us. It's kind of like being a parent saying, "All right, brothers and sisters. [laughs] You make sure you're all behaving." David: You are exactly right though. We wanted and we still hope to create an environment where the buyer's experience is similar no matter what market they buy in. All of these teams are incredible in their own way. To create a standard buying experience and a standard buying expectations, it allows buyers then to build up their portfolio with a bit more confidence. If they have experience A in market A and they have experience Z in market B, it's kind of hard to build up your portfolio. Here in my group and here in my city and what is it that we try and achieve is it's very important that investors have the confidence to build their portfolio beyond that first house or two or three or four. Anyone whoever talks to me, Kathy, knows I preach all day long the fundamentals of real estate investing. You cannot create really meaningful wealth in real estate investing by doing one or two houses. If you have a terrible experience on your first or second house and decide not to do it again and say, "Well, that's it for real estate. I'm not going to invest in it again." That's awful because you've just closed off one of the most productive channels for creating wealth in your life just because you had a bad experience with a swere in Cincinnati. Sorry, Cincinnati. Kathy: Right. It's kind of like Rich. He proposed to two girls before he got to me. If he gave up, we would never have this 25-year awesome marriage. David: That's right. Poor old Rich, I didn't quite understand he was trying so hard. Kathy: He just hadn't met me yet though. Tampa has had its ups and downs, right. Tampa got hit so [00:06:00] hard in 2008, 2009 because it was kind of a speculative place before that. People all over the world were just buying property expecting it to go up in value and maybe not having the fundamentals in place. Were you in the Tampa market during that time? David: Yes. In 2008, '09 and '10, we were all over the Florida market. We were buying at that time broken condominium communities. Basically, these developers who were doing condo conversions and they couldn't tell them because finance buddies were not funding on them. They were not lending on them. There's nobody literally in the United States that wanted to buy that type of product. These are typically two-bedroom and three-bedroom condominiums that would rent for $1,000. While the builders and these condo conversion guys were trying to sell them in 2005 and 2006 at, let's say, $200,000, we were picking them up at $90 and $100,000 in 2009 and 2010. There was one thing that was static and that was the rent. When I look back at that time, yet Tampa, Florida in general was hit, various markets were hit very, very differently. The Orlando market, if you have experience in the Orlando market, it's very different from the Fort Myers market. Different neighborhoods in the same city. A-class neighborhood, really high quality A-class neighborhoods where your doctors and your lawyers and that type of folk live. Their experience of the downturn, the neighborhood experience, was much different than the lower-income neighborhoods. The lower-income neighborhoods, that downturn went on for an awful lot longer than it did for the A-class neighborhoods. It really boils down to just the neighborhood you're in, the product that you're in. Were you in single family, were you in multi-family, what type of products you're in. The one thing that stayed constant and I created right through it, Kathy. [00:08:00] This is the most important thing that any real estate investor should know and learn is that my experience of the last downturn was that rents stayed constant. I really don't know why people were selling when rents stayed reasonably constant throughout the last downturn. If rents stayed constant and you take a long-term view on real estate investing, which we're going to talk about today, you're going to do very well. That was my experience of it. Tampa had a fair share of problems in 2009, '10, and '11 with the financial crisis. Kathy: I can tell you probably why they sold. They probably paid too much for the property and it never cashed flowed from the outset. If they did spend $200,000 on a condo and they were getting $1,000 in rent, plus the condo fees, plus the taxes and everything, they were negative cash flow from the start. David: That's just it, Kathy. Real estate investing starts with sound underwriting. If you're underwriting in sound from the get-go, you should be able to navigate your way through any real downturns. Always remember that. I think that they're very wise words. Coming in and "investing" where you're underwriting doesn't pencil out and it's really just on the speculation basis that prices would go up. If you can't weather a few years of lower cash flow, you examine why you're really investing. If you're investing just because you hope prices will go up, that's a really, really unsound way to approach real estate investing in general. Kathy: If we just go back to that time because a lot of our listeners maybe weren't investing at that time or if they were, they didn't understand investment. David: That's right. Kathy: It was so easy to get a loan. You could get a 100% financing. I could go to Florida and buy five of those condos, I could buy 10 of those condos with a no-money down loan. In some cases get a teaser rate where maybe it did cash flow for [00:10:00] a minute until the rate adjusted to where now all of a sudden you're negative cash flow and you're trying to carry 10 of those properties that are all negative cash flow. That adds up and then now add to it that the value of those properties is cut in half. That's why people couldn't hold. If they had bought right, you're right, why would it matter? One more thing, the interest rate was 6% to 8%. It was easy to get loans but the rate was much higher. Today, it's half that or a third of what it was and it cash flows, for the most part. Not everything cash flows anymore, but you can get that. Let's say you bought a $200,000 property today, what would that rent for today? David: We all remember the days of the 2% rule and then the 1% rule. I still work along the basic premise that if a property rents for about 1% a month, on the outset, it can be .9, it could be .8, it rents possibly, so a $200,000 home can rent for about $1,700. You're right there. You're in the zone where it's starting to make sense. That would be just like 0.8% of the value of the home, of the purchase price of the home and that's day one. Now, remember, inflation and anybody who's been to the store recently or doing anything else, anybody who's dealing with inflation right now will notice that rents are rising and the cost of everything else and the ecosystem is rising with more dollars in the economy right now. Usually, the day that you buy a home from a rental perspective, that's probably about the tightest it ever will be. Over time, your rents are going to rise and, over time, inflation is going to lift the value of the home and lift all the aspects of the home and your tenants is going to pay off your amortized mortgage. [00:12:00] If you look at all of these numbers and you pre-look at them, you're probably going to be reasonably okay. The issue I have is when I'm out there and I'm working with realtors. I was just out in Phoenix this week. I was looking at potential Airbnbs for myself and my family. I like to diversify as well. I was out in the Sedona area and it struck me how few realtors knew how to underwrite. I met a bunch of realtors last week out in the Arizona area. It struck me just how few of them knew how to actually underwrite. They were like, "Oh, this is 1.1 million. Can we get the taxes on this? What's the monthly rent on it? What's the long-term rent? What's the short-term rent? What are the fundamental backstops to the underwriting?" Very few realtors knew how to answer any of my questions. That's one thing I love about about Real Wealth Network. Everything in your organization is underwritten with a sound basis and numbers, facts, and data. That's how you protect yourself. Kathy: Yes, and that's one of my dreams is to educate these real estate agents so they really know how to sell properly because clients are expecting them to be able to do it. Although there are some DRE rules around that that licensed real estate agents are not necessarily supposed to be giving investment advice. Anyway, you need to know numbers. [laughs] You need to know numbers and understand a proforma. David: Exactly. It's sound underwriting because as they say, there is one thing that's reasonably constant in real estate and that is that the demand for rental housing will remain reasonably constant and the rents will remain reasonably constant. That is my big takeaway. Quite frankly, it's how I invest right now and how I look at the market. People like, "Oh, do you think about this? What do you think about that? Where's the top of this, that, or the other? I know I traded through the last downturn on the basis of well underwritten rents. I could see what those rents were before the downturn, I could see what they were now, and I could see [00:14:00] what they were after. Rents stayed reasonably constant. I'm not saying that nobody out there has said, "Well, in my market, rents are down a little bit," but it's my experience rents that they stayed reasonably constant. That's very important to understand. Kathy: Yes, absolutely. That was a look back at the past and why Florida got a bad rap for being not a great place to invest because so many people were coming in speculatively, buying stuff that never made sense at the outset. It was purely based on appreciation and it did work for a little while. If you bought between 2002 and 2006 and got out, you made money. David: Yes, that's right. Kathy: If you didn't, you had to sit and hold those properties for 10 years or just let them go. Wow, have things changed. Fast forward, 12 years, and what we're seeing right now, I've got a few data points here that the Tampa area came in as one of the top places for rental increases. I think it was, what was it, 11.5% nationwide is the increase in rents in the past year. There are parts of Florida where it actually went up 31%. I don't know where those areas are, maybe you do- David: I do. Kathy: -but rents have gone up significantly. Have you seen that personally? David: Yes, I have. I've had to re-analyze even my own personal portfolio copy. I think it's in the denser urban course where you're going to see it, but even out in the outer suburbs. I think the reason being is Tampa and Florida is very, very, very different place now than it was in 2004 and 2005. The economy here has changed dramatically in that time. It's a much more tech financial corporate-based economy than it was. The Tampa market is not a tourist market at all. I've got some really cool slides that show just quite how diversified the Tampa market is. Florida, in general, whilst everybody knows we have quite a large inputs of [00:16:00] retirees and the like, and if people traditionally think of Florida back in the '70s and '80s and '90s, it's almost like an agricultural retirement place. That's how older people visualized it. But it's not like that anymore. People are moving down here from all over this nation because it's dynamic. It's much younger than it used to be. Most of us can work somewhat remotely now, so it's still reasonably inexpensive on a national level. It's a really, really super high quality of life. Florida has an awful lot more going for it now. It's just the economy has changed. So many of us can work from home. So many of us are almost job optional. I think that's had a massive, massive effect on just who considers moving here. I think our rents have increased top level just simply because given the option, people would rather live here than in a cold northern state, in my view. I know I do. Kathy: Yes, and those cold northern states are far more expensive. Even if rents went up 30% in Florida terms, for many of those people from those northern cold states, it's still probably a bargain. David: That's right. Think about it like a $1,000 rent going to $1,300. That's what it is. It's not eye-popping because that's not really were rents should come from. Rents should come from like, I always said, $1,000 to about $1,500 is your average rent here. I think now, it's somewhere probably between $1,300 and $1,900. It's not that much and it still pops out at about $2,000 across the market. Say that to somebody living in San Francisco or Los Angeles or New York, and it sounds positively bargain-like. Kathy: Oh, yes. I just talked to my friend who visited yesterday and her daughter's renting a room, just a room, for $1,200 in LA with three other roommates who are also renting rooms, so [00:18:00] yes, to be able to get your own place and pay about the same with more space, right? David: Yes. I live in downtown St. Petersburg and anyone who has been here, I know you already know, but it's just so beautiful here, really genuinely. My quality of life is insane, 20 minutes to airport, I get to live in an amazing place right downtown. Like I've heard all you Californians, downtown St. Petersburg is kind of a waterfront city, kind of like La Jolla in a little bit of a way, in that it's like college, great bars, great restaurants, beaches, amazing lifestyle for a fraction of the price, so why wouldn't they come? Kathy: Well, listen, David, I really should have listened to you a lot more and I'm going to just smack my head a little bit because you're still been bringing so many opportunities to me. We are ready to jump, but I would say, when I did visit you in St. Petersburg and I did ended up buying a house. At least I did. I wish I bought 10. Bought one at least. David: Yes, you did. Kathy: We had the Opportunity Zone opportunity and you showed this whole area where we could buy lots for almost nothing. I waited and all of a sudden they went up 10 times in the time that I had to figure out the Opportunity Zone. Did anyone end up buying those? David: Yes, they did. I don't know if you want to hear the next minute of what I have to say. Kathy: Of my tragic story of not listening to you? David: Yes. We were picking up lots at that time. This is right at the start of the Opportunity Zone opportunity and we were picking up lots of between $9 and $13,000 and everything lot there now is between $30 and $80,000. You know what it is, is that if you go into this Opportunity Zone program was really, really powerful. I didn't quite appreciate just how. I knew there was an opportunity, but I didn't understand quite how. You visit those neighborhoods now and they're right by downtown. People were buying these rundown homes in really troubled neighborhoods. [00:20:00] They were buying these homes for like $100,000. Well, guess what. Enough people come in and buy those homes and they built like seven, eight, $900,000 neighborhoods in these neighborhoods. Now, it's just taking so much velocity that the neighborhood itself now is highly desirable. Kathy: Oh, yes, but you knew that. You knew that? David: I could see it happening. I could see it happening, for sure. Kathy: Yes. I mean, because it was too close to all the awesomeness you just talked about, all the nice restaurants, and the waterfront, and the little bike path, and the boats, and the beaches. David: That's right. That's right. The little are going to run down homes. It went against everything that I do because I'm a B Class operator. I think you know that I like the concrete block homes. In my investments that I own myself, they're upper B, they're what I call vanilla ice cream. They don't offend anybody. They just do what they say on the tin. They're very functional. People like them. It's very uniform product. If you go into these older neighborhoods with rundown homes and more questionable when you're driving around, just more questionable dynamics, and you say to somebody, "Hey, this neighborhood is changing." I don't like to bring somebody from California and drive them in and say, "Hey, if you speculate in this neighborhood," because I'm not a speculator. I like to bring people in and say, "If you do this over the long-term, you will do well. If you do this, and you do enough of them and you hold them long-term, you could create meaningful, meaningful financial wealth for yourself." I'm not a speculator. Don't feel bad about it, Kathy, I'm not a speculator either, I'm more of a sound underwriter. Kathy: It was just simply a matter of just not getting around to it. Sometimes that happens. You know what? On certain opportunities, you don't have that privilege to wait and be lazy. David: You don't. You did plenty of other things- Kathy: I did. David: -so you can't do 'em all. Right. I wouldn't go [00:22:00] and lick your wounds too much. You did amazing things over the last few years. Kudos to you. Kathy: Thank you. All right. We have a webinar at Real Wealth with you on Thursday. That's this week. David: That's right. Kathy: If someone's listening to this podcast past this date of September 21st, then you just go to realwealthnetwork.com and you'll find the webinar there recorded. If you want to hear it live, you would go to realwealthnetwork.com. Join, it's free, and you'll get to hear a much more in-depth webinar with you on what kind of opportunities exist. Listen, opportunities are changing all the time. When I first came to Tampa, I was there during the whole boom, the whole mortgage boom, so we were looking only at new homes because that's all there was. Then, of course, in 2009 we were only looking at foreclosures. That's all that there was. Now fast-forward to today, everybody's chasing stuff in Florida, specifically Tampa, super hard, super competitive to find inventory. What's the opportunity today? David: I've just come back from a big seminar with all of the top hedge funds and institutional people in this country. I know what they're talking about. They have much better data than me. They've much better data than any of us. I know where they are looking. I know what their plans are for the next three, and four, and five years. Basically, it's a Sunbelt. This is the biggest institutional buyers in the nation. They currently own about 82% or 83%, I believe, of the commercial world. They own about 3% of the single-family home wealth, and that is where they are going to be chasing yield for the next decade. They are going to try and create a situation where they own vastly more residential real estate than they currently do. Their attention is all in the Southeast and the Southwest, so to a degree in the Texas area but largely in the Florida, Georgia [00:24:00] states. That's where they're going to be targeting. I'm happy to be in there right now. In terms of where the opportunities are in Florida, there are a very, very certain pockets, very defined pockets, some densely urban and some suburban, some suburban cities throughout the nation. Suburban cities, in general, are growing exponentially because the inner, the downtown cores of a lot of these cities become too expensive or they don't have the right type of inventory. A family looking for a good school with a three bedroom, two bath, for under $200,000 is not going to find that in Tampa at all, just in the entire metroplex of Tampa. Where those work, who's looking for what, where. One of the things I also have noticed over the last number of years, certainly in the last year-and-a-half, is there's no finished inventory. Everybody's selling new. There's a lot of supply chain issues around the world. Permits are getting delayed. Construction is slower than we'd all like it to be. There's a lot of investors out there right now who want to buy their 1031 exchange, or they want to lock in their cheap interest rates now and they want to get their investments going now. Well, on Thursday, I'm going to launch 10 in construction, single-family home, renovated home. They're already there. They're already built. I already own them. We're just finishing off roofs. We're putting the last touches of paint and kitchens into these 10 homes. Anybody with a 1031 exchange right now, who wants to look at the Florida market, I would tune in on Thursday. It's not very often you're going to see anybody that has any inventory that's available uniquely for Real Wealth Network buyers. Thursday, tune in, and I'll give you the skinny on these 10 homes. They're ready to go, and I look forward to working with anybody who's got a tight timeline. Kathy: Very exciting. All right. I always want to jump in and be one of the buyers, too, but of course, we let our members go first. [laughs] David: Please. When they're scarce, [00:26:00] please let the members get in front of you on that one. Kathy: Yes, exactly. All right. That's wonderful. People can go to realwealthnetwork.com. If you are not a member, you join, it's free. If you're already a member, then you'll already know about this about event on Thursday. All right. Well, thank you so much for all your knowledge. You have so much more input and insight on how to build wealth, which I hope you'll be sharing a bit on the webinar. David: I really do, Kathy. It's one thing to have real estate, it's one thing to be an expert in one market, but it's quite another thing to really understand why. I'm trying to teach my kids right now why they should do their homework. I'm looking at myself as a child, and I say, "Well, what was it that was missing for me?" Or, "What is it that I got?" Whenever I'm going to do anything, anything in life, that I'm going to do it to completion. I need to know why I'm doing it and I need to know the incentive for doing it. Why and the incentive. I'm very passionate about those two things. I think that there's quite a big disconnect in investors really understanding the why and the incentive of how it actually works out. I will definitely be touching on how to build wealth with real estate on the webinar. I look forward to that. Kathy: The why. Yes, the why. Why this over, say, a stock, something like that. David: Yes, and how to avoid short-term thinking, short-term narratives, how to get your head out of your social media that's scaring the pants off you about this, that, or the other. How do we keep our heads over the long-term when there's just so much noise out there? How do we achieve that? As I get older and I become a more successful investor, it's one of my core tenets of my belief is, "How do we just put all that to the side and invest for ourselves and for the long-term?" Kathy: Great. Yes, especially if you did make a bunch of money in Bitcoin, well, maybe it's time to cash that in and put it to work. All right. Well, so great to have you here on the Real Wealth Show. David: Thank you. Kathy: I look forward to your webinar on Thursday, and I look even more forward to seeing you somewhere in the world. [00:28:00] We still have ice cream in our freezer from the last time you were here, and we have it. [laughter] David: Thank you so much, Kathy. I really appreciate your time, and I look forward to Thursday. Kathy: Thank you for joining me here on the Real Wealth Show. If you'd like to become job-optional with rental property income, join Real Wealth Network for free and log into the website. As a member, you have access to the investor portal, where you can view sample property performance and connect with our network of resources, including experienced investment counselors, property teams, nationwide; lenders, 1031 exchange facilitators, attorneys, CPAs and more, and they've all been highly recommended by over 56,000 members in Real Wealth Network. To join, go to realwealthshow.com. Speaker 1: The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities, or to make or consider any investment or course of action. For more information, go to realwealthshow.com. [00:28:29] [00:29:05] [END OF AUDIO]

They were very well employed in the tech industry. She worked at Amazon. He worked at eBay. But they felt their jobs were not just high tech but high stress, to the point of being "soul-crushing." That's when they decided that something had to change, and started investigating real estate and the single-family rental business. Lily and Shane Yong timed it right, during the housing crisis. They'd buy a home and then turn it into a rental when they upgraded. One thing led to another, including some RealWealth networking, and they were soon investing their money out-of-state. The portfolio they've built has made it possible to get out of the rat race, and "live life on their own terms." In this episode, they share their Real Wealth Story with both Kathy and Rich Fettke. That includes how they got started in California and expanded elsewhere, how long it took them to be able to quit their jobs, their decision-making process, their first 1031 exchange, and challenges they have faced and overcome. If you'd like to "live life on your own terms," Join RealWealth today at www.realwealthshow.com. Membership is free, and will give you access to the Investor Portal where you can view sample property pro formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! Go to www.RealWealthShow.com for the full transcript or to listen to past episodes. TRANSCRIPT [music] Rich: You're listening to the Real Wealth Show with Kathy Fettke, the real estate investors' resource. Kathy: Welcome back to the Real Wealth Show, we're going to do another Real Wealth story with Rich Fettke- Rich: -and Shane and Lily. Kathy: Who have been Real Wealth members but they started their journey years ago on their own and have both been able to quit their high-tech jobs that they say were soul-crushing. We're going to find out why and how they've been able to achieve that. Shane and Lilly, thank you so much for being on the Real Wealth Show today. Shane: Oh, you're welcome. Thank you for inviting us. Rich: We're excited to hear your story. We know a little bit about it, very inspiring. Going from the tech industry and corporate to being financially independent on your own now, so I can't wait to hear about this. Kathy: I want to jump in and say, when you're starting out in life, getting a job at a big tech firm, that's a really big deal and people are generally pretty excited. Then that starts to wane and I'm wondering why? Why did it suddenly become more of a soul-crushing experience? Shane: It depends on the company. Some companies, of course, they treat their employees like they're dispensable. [unintelligible 00:01:20] names here. It can be tough. I started on engineering, but then I moved to management. I had to move up the ladder of management. Over time, I don't know if you have experience in corporate management, it becomes pretty soul-crushing. I remember-- [chuckles] Rich: Got it. Kathy: Demanding your heart and soul, but maybe not giving it back. Shane: I'll give you an anecdote. I was given the task of laying off a third of my team. They gave me a spreadsheet, and I couldn't talk to anybody. [crosstalk] Rich: That is soul-crushing. Shane: It's hard. I lost sleep [00:02:00] for days because I was making decisions with people's lives. I just had to go by gut and based on historical data and all that stuff, I couldn't talk to anybody. Rich: Why did you guys choose real estate? It seems that there's so many people that put their focus on investing in stocks, or you get your 401k with a company. Why real estate? Shane: A lot of the real estate stuff was her influence. Our first investment actually was the property in North Carolina, where she was going to seminars, and she heard about this one provider. We got hooked up with the provider. We said, "Oh, okay, let's try it." We purchased our first rental, actually the first rental out of state. Rich: Out of state, got it. Didn't you sell the residence and then move to a new one and turn the old one into a rental in California? Shane: Yes, we did that 14 years ago. Lily: I bought my first place and then you bought your first place. Then later on, I moved into your place and so that we sold that place, and then-- Oh, what do we do with the money? I use it to buy another rental. We bought that one and then we bought that other state property. Then later on, we moved from the place that we lived together that we changed that into another rental. Shane: Then we had kids. That put a damper on things for a while because babies, man, they're a lot of work. [laughter] Rich: They're a lot of work. Puts a damper on something, but also highlights others. Shane: I was in Vegas. On the way back to the airport, there was a taxi guy who was driving, and he was striking up a conversation with me. I was of telling him different things. Then he brought up what he claimed was the fact that he told me never invest in real estate because you will always lose money. Because during- Rich: The genius taxi driver. [laughter] Shane: I came home and I told her, [00:04:00] "Lily, we have to buy more properties because the taxi guy just told me not to do it." Rich: Oh, good. [laughs] Shane: You know it's the best time to invest when taxi guys and grandmas tell you not to go invest. Rich: Oh, that's so funny. I love that. Shane: That's when actually we started to look for more investment properties. During that time, it was difficult because with two babies. I remember we were driving to properties. I would sit in the car with the babies and Lily would run in and look at the house and then she'll come back out and then go, "Your turn." I'll run inside while she deals with the babies. It was tough. Eventually, we looked for help. That's when we found a six-unit property in Hayward. Kathy: Oh, wow. Rich: Nice. Shane: That was our first and only foray into commercial properties which brought in a whole new set of challenges. I'm sure- Kathy: Like what? Shane: Commercial properties the loan process is- Kathy: I was going to ask about the loan process. Shane: -very intrusive. I wasn't used to it. The types of things that they want and need is very different. After that, we maybe bought one more property in the Bay Area. That's when Lily went to more- Lily: More meetups- Shane: -meetups and things. Lily: -to learn more about how other people's strategies are. I came across your community. Shane: RWN. [laughter] Rich: Excellent. Shane: Real estate was something that we already had some-- we dabbled in it already and we felt like we saw some benefits, like tax benefits that you don't get with the other equities, for example. Lily: Also, we saw different characteristics. We do still have our stock investment. I feel like the volatility is different, and it is something that I can work on and it's something in our control. Rich: That's a really good point. [00:06:00] I know a lot of our members like the whole having a hard asset too, it's going to be there, it doesn't vaporize. That's great for you. Shane: Managing rentals is work. A lot of times people will say, "Oh, you're doing rentals so you sit around doing nothing, right?" You got to manage the property managers too. A lot of times they send questions and/or they don't do something. We had experiences with bad property managers. We have all kinds of horror stories. Lily: Even sometimes with a good property manager, they can only do so much. There's still things that you need to manage. Rich: Absolutely. Kathy: Got to buy, right? Rich: Yes, because all of a sudden you're dealing with sometimes the city can be a challenge. Sometimes it's the permitting process. Then let's continue on your journey here. Now you've got your multifamily that was at how many units in that? The ones in Hayward? Lily: Six. Rich: Six in that. Okay. That's when you went out of state? Shane: Yes, we already had one out of state at that point, the one in North Carolina. Lily then decided to quit and my deal with her was that okay, since you're quitting, you're going to have a little bit more time besides dealing with children, which, again, that's a lot. Don't get me wrong, that part is a huge part right now. She was able to spend more time doing more research and she came across RWN. That's when she attended more seminars, and we started to purchase our properties through your help. You guys can agree on that. Rich: You went to a Real Wealth live event? Is that what you did? Lily: One of the event, yes, probably. One of the-- in there. Before, our approach was ad hoc. What we have then, maybe we'll turn into rental and stuff. I guess at that point, we're thinking we should have a more holistic view of our portfolio and see does this number really work better? Is there a really better number, a better appreciation over time? We did some calculation. We also want to diversify not just between different asset class, but also location only where we want. [00:08:00] Not just everything in the Bay Area, or not everything in one state. We went to one of the events that you guys usually host in San Mateo. I was going to your events for quite a while before we're able to talk to people. I think what I like about it-- it's like besides just how you guys seem to be so on top of it, and due diligence and have a great team. Also, there's a community so you were able to kind of bounce off idea and see what you're doing. Sometimes, if you just do it by yourself and other people don't really know what you're doing, is you by yourself, too. It's nice to be able to have people to talk to. Rich: That's important. Shane: At the end of the day, we trust you guys. It's the biggest factor for us to work with you. Of course, we trust that you and your team to help us navigate and connecting us to the right set of folks who hopefully will help us with not just buying but also managing the property. That's actually a bigger thing than buying it. I can go and buy, no problem, is the dealing with all the stuff for years later. Rich: Learn the lessons. Lily: It's the decision point. Each time we work with a team like you guys specifically, on some [unintelligible 00:09:23] or with the provider that you guys have vetted for, each decision point and I can see something may be more risky and then would that be a good thing for the investor? I really appreciate that a lot. Some people may ask us, so we already have a property out of state in North Carolina that we work with some other team. The experience with that was also very just transactional. We buy and then-- Shane: You're on your own. [laughs] Lily: Yes.I don't feel like we got a lot of support afterwards but with RWN, [00:10:00] I feel like we have this ongoing relationship. I feel like at the long term, it's something that we can work together. Rich: Where are you now? Do you have a good amount of out-of-state properties? Shane: Yes. Well, the majority of our properties are for sure. Out-of-state. Lily: In terms of units. Shane: Yes, in terms of units. Katy: Yes, and what states? Lily: Florida. Ohio, Michigan, Alabama, Shane: Yes. Kathy: Wow. Shane: Now we just added the couple in Nevada. Lily: Yes and north-- Shane: We are buying another one in North Carolina. Kathy: You have a pretty good portfolio when you can't remember what state they're in [laughs]. Rich: I know. That's happened to us too. Shane: When you have to do all the state taxes and one is different and crazy. Kathy: That's fun too. Rich: That's how you remember the filing system. Kathy: That's when you get the CPA to handle all that. Rich: What's the future goal and plans for you guys? Shane: We're going to keep expanding our portfolio. The whole point is to get cash flow so that we can continue supporting our lifestyle. Rich: Okay. Shane: Going back to that journey, when Lily starts searching for more properties to buy, the goal was to eventually help get me out of my soul-crushing job too and so the good news is about a couple of years ago I left the industry and I have to tell you a lot of people I worked with were shocked. Rich: Yes. Shane: They thought I was doing relatively well and doing, and they go, "What? You're going to leave this?" Especially, younger folks. You mentioned younger folks, there were engineers who just started and they thought this was it. They go to the tech industry and they die in the tech industry, whatever. When I told them that, actually, a few of them came and talked to me and they told me that I opened their eyes to the fact that there are alternatives, that there are other ways of making a living. [00:12:00] We got there and now we're continuing to expand. We're actually in the middle of a 1031 exchange. This is our first one ever. Rich: Wow. Shane: We learned quite a few things not to do until we did it and a bunch of last-minute things, but we were still going through it and hopefully we can get it all closed in the next couple of months because I'll definitely feel better when we can get there. Rich: 1031 out of California? Is that one of your California properties into something else? Shane: Yes. We, we sold one and we were buying multiple in other states. Rich: Excellent. Lily: I was saying I wasn't in management and it was a different soul-crushing I guess, but I actually still love tech. I feel like now I'm not in the big machinery that it freed me up more time to actually do the tech project or whatever other project that I'm interested in. Kathy: As a freelancer or just for yourself. Lily: Projects or-- yes, I just call them projects for now. Shane: For fun. Kathy: I love that. Shane: She's definitely more techy than I am now. Kathy: You could turn this into what you originally went into your career for, which was your love for technology and that's what more and more people are realizing is that you can become more of a contractor and only take projects that you want and be your own boss. You did all this while living in the San Francisco Bay Area, right? Shane: Yes. Kathy: I'm curious because it's so expensive to live in the San Francisco Bay Area. Even if you have two people working with good salaries, it's so easy and then add two kids right into the mix. It can be very difficult to set aside the money needed to invest. How did you do it? Did you sit down and have a financial plan? Where did you get the money? Shane: [00:14:00] The money came from our jobs and our equity in the companies that we worked at. We worked at relatively large successful companies, so that helped. That is a big part of where it came from but the other magic to this was Lily spreadsheets so she is the magic. She loves spreadsheets. I hate anything that has to do with forms and spreadsheets. I'm so happy that she-- Lily: I think it's the essence that you attach it, what it means to you, right? For me, it's a discovery. I love to remember is what I discover, what I can do, and what the possibilities. Shane: The other part of the deal with her was that she would put everything in the spreadsheets and she'll try to figure out, okay, what are expenses? What are things that we need to plan for? How much money do we need to come in every month before we can get to the point where both of us can do something else. Lily: I think another thing was also that we just started. We started early so that if we were to wait till later, to wait for more down payment, to wait for more then is getting even harder. We started early, then we set money aside to do whatever to, so that then later property increase value. Then we can do that to roll up, to buy other stuff too. Shane: I was not from that Hong Kong mindset. I didn't know anything about real estate. I just go, "Oh, you buy a house and you live in it." I never really thought of it as a real estate investment thing, but look at us now. Kathy: Yes, so you did have a financial plan, then it does help to have someone who understands and loves spreadsheets. Shane: For sure. Kathy: If you don't have someone in the family, you can certainly have your CPA do that with you or even a bookkeeper. All right. I know it's not all easy rainbows and unicorns. What have been some of the challenges along the [00:16:00] way? Shane: Challenges. [chuckles] Shane: The lessons learned for our listeners and viewers. Kathy: Yes, lessons learned. Shane: Some of the bigger challenges I would say is that when you're renting homes out, there's people involved. It's not a computer, it's not a machine. Kathy: It's not all the same algorithm. Shane: Yes, so you can't just write another routine to make it faster or make it smoother. The problem is that when it comes to dealing with people, there's always going to be emotions and people not doing what they're supposed to or what they promised and things. Then you end up having to deal with the consequences. I would say one of the biggest things sometimes is just not to panic because a lot of times I tell my friends who say who are interested, I say, "If you're going to do this make sure that not only you can sleep at night, but your spouse can sleep at night when someone doesn't [unintelligible 00:17:02]." Rich: Yes, good advice. That's really good advice. Shane: If you are perfectly cool, but your wife is losing sleep every night. It's not worth it. Don't do this. Rich: Yes, got to be partners. Shane: Going back to this. There are things like obviously like sometimes people don't pay rent or whatever and you have to go through eviction processes. I'm sure lots of people deal with that already, but there's things happen on your property. We have one where even the police was involved, but we didn't panic. We had a very good property manager who helped us deal with it and it all worked out. We may be lost a little bit of money there, but then we regain it once we got it all fixed up and repaired and rented out. It'll recover, it's just that sometimes it can be a little scary. It's because you're dealing with people and hopefully folks buy properties in all A neighborhoods all the time, but we don't because we're looking for cash flow [00:18:00] but even A neighborhoods have problems too. Kathy: We had a beautiful brand new house, lakefront, that we rented out and they painted it purple inside the whole thing. You do never know but that's why we have contingency plans. You got to have great insurance to cover things and also reserves, I'm sure you put that in your calculations. Shane: Yes, and the big thing that we tend to tell folks is get umbrella insurance. Get as much as you can. Especially, folks who think that they can just put an LLC and they'll protect them, it doesn't. Lily: There's always more money to be made. There's always a better investment, but you never know ahead of time. If I bought more at that time, then I would have a bigger portfolio that is more cash, whatever but there are a lot of things that you don't know ahead of time and as good enough. [laughter] Shane: What's good enough? Like any business there's risks and sometimes, like I said, if you can't sleep because of the risks you're taking, don't do it. It's not for everyone to be honest and it'd be very tough on certain people I know who, fortunately, knowning enough about themselves that they, after I told them this thing, they go, it's not for me. Kathy: It's not me. It's important to know that. Rich: It's very important. Investment means risk right. Investing in anything means risk. Lily: I guess like you said just have a good medication plan. Kathy: I'm curious, Lily when you quit your job and then Shane when you quit yours, but let's start with Lily, did you notice a difference in your income? Because at that point you were probably able to collect even more tax benefits by becoming a real estate professional. Did you experience that, any change in income when you quit? Lily: Well obviously the W-2 is gone [00:20:00] so I've noticed that. [laughter] Tax-wise, there are different kinds of tax write off because with W-2 we're not able to take a lot of deductions, and they all have to be deferred. Rich: Got it and then you turn your trips out to your rental properties as family vacations, right? Didn't you say that? Shane: Yes, part of it was, we wanted to go to some of these places to meet the providers who [unintelligible 00:20:29] a place and yes when my friends were going to Hawaii, whatever, for vacation, we went to Ohio. Rich: I know. [crosstalk] Different vacations [crosstalk] Lily: Interestingly, if we asked our kids what they remember, they remember the swimming pool in the Ohio hotel more than Disney or [crosstalk] Kathy: Isn't that amazing and room service, sometimes it's all our kids wanted was to sit and watch a movie in a hotel and get room service. [laughter] Shane: Disney world was overwhelming but the swimming pool at the Ohio Hotel in the middle of I don't know-- Rich: Oh that's funny. Lily: Have so much screen time. [laughter] Kathy: That is great. Rich: You guys get to do Disney World and right off that trip, right? Shane: Yes, yes when we went to look at properties in Florida, we did go to Disney World, so that was really good, maybe we should buy properties in Hawaii. Rich: There you go. [laughter] Lily: [unintelligible 00:21:29] to oversees [unintelligible 00:21:30] Kathy: I believe and talk to your CPA, but as long as you are looking for property, that might count. All right, or going to an event that's related to real estate. Shane: The other thing that about not having a W-2 is that we can no longer do the type of loans that we could before, which makes things complicated. Actually, we went through the learning process of that-- Kathy: You would have kept your job longer and gotten all the loans before you quit maybe? Shane: Well, two things, one is I wish [00:22:00] we put the properties first all in her name, and then all in my name so that we get 20 because we didn't, we hit the 10-limit already, so even if I kept my job I wouldn't have been able to unless we start selling or whatever but then after not having W-2, we had to do the non-conventional loans and that was a whole lot of beeswax, yes. Lily: I look at my friends who have W-2 their interest rate and that is just high and [unintelligible 00:22:31] Shane: They don't know how good they got it yes. Kathy: Rich, I want to say we but it was really Rich just finished a commercial loan that took him only like three or four months maybe six. Rich: Oh man, we got a bottle of champagne after it was all done. We put it aside and be like when this is done this is getting open. Shane: When I say intrusive, people don't really know what that means sometimes. Lily: [unintelligible 00:22:57] okay I will do it. [laughter] Rich: Well thanks so much for being here you guys, really appreciate it. Kathy: Thank you for sharing your experience and your wisdom and congratulations on continuing to create your dream life, we'll talk to you soon. Lily: Thank you. Kathy: Thank you for joining us here on The Real Wealth Show, it's always good to have you here, Rich. Rich: Good to be here. Kathy: We're going to have to do another interview soon and this interview was so much like your book that is coming out soon. Rich: Very similar, yes. Kathy: I hope we get that published very soon, probably this fall, it's extremely inspiring. For more information, free webinars, and conversations with our investment counselors who all own lots of real estate and more referrals to teams nationwide who can help you find property and manage them, you can go to realwealthshow.com. It's free to join and you'll get access to so much information to help you on your journey. Rich: See you. Kathy: Bye-bye. [music] Rich: The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information go to realwealthshow.com [00:24:10] [END OF AUDIO]

The housing market has never been so competitive. Buyers are going head to head in bidding wars and trying to out-do one another with concessions. But when it comes to buyers that need financing and ones who offer cash, sellers often choose cash because it's quick and easy. In this episode, you'll hear from NerdWallet's Holden Lewis who talks about what borrowers can do to give themselves a fighting chance against cash buyers. Holden has reported on mortgages since 2001, working through a housing boom, the Great Recession, and the long recovery. He's also NerdWallet's authority on mortgages and real estate, and the former president of the National Association of Real Estate Editors. He's won various writing awards, and is rehabbing his Mom's house! He'll share some of his tips for people with loans and what they can do to make their offers more attractive to sellers. Join RealWealth today at realwealthshow.com to find out how to build wealth with new and renovated single-family rentals. Membership is free, and will give you access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! TRANSCRIPT: [music] Rich Fettke: [00:00:00] You're listening to The Real Wealth Show with Kathy Fettke, the real estate investor's resource. Kathy Fettke: The US housing market may never have been quite as competitive as it is today. Buyers are going head to head in bidding wars and trying to outdo one another with concessions, but when it comes to a buyer that needs financing and those who offer cash, sellers often choose cash because it's quick and easy. In this episode of The Real Wealth Show, you'll hear from NerdWallet's Holden Lewis, who talks about what borrowers can do to give themselves a fighting chance against cash buyers. I'm Kathy Fettke and welcome to The Real Wealth Show. Holden has reported on mortgages since 2001, working through a housing boom, the great recession, and the long recovery. He's also NerdWallet's authority on mortgages and real estate. On today's show, he's going to share some of his tips for people with loans and what they can do to make their offers more attractive to sellers. Holden, welcome to The Real Wealth Show. Holden Lewis: Hey, nice to be here. Kathy: I think we've heard your company's name in the news quite a lot, so it's really an honor to have you here. Let's talk a little bit about the, first of all, what your company does. What is NerdWallet? Holden: NerdWallet, well, it's a financial marketplace where you can go to find mortgages, credit cards, that kind of thing, plus lots and lots of personal finance information from dozens of reporters. I'm one of them. Kathy: Okay, wonderful. It's interesting because there's a lot of talk about not going into debt. There are authorities out there, Dave Ramsey for one, that says don't go in debt. What are your thoughts on that? Holden: There are some kinds of debt that are just perfectly fine to go into. Student loans, mortgages, I think that those are fine. I think a lot of times credit cards are [00:02:00] a perfectly good way to spend your money. I think about when I was in my early 20s and if I had an $800 car repair, I didn't have that kind of cash. I had to put it on a credit card. Well, there's nothing wrong with going into debt to fix your car so you can drive it to work. I think there's a lot of places where debt has a place. Kathy: Sure. I know I lived in Switzerland as an exchange student when I was, oh my goodness, 17 years old. My Swiss mom basically said, oh, no, we never use debt. We just save for everything. If we're going to buy a new car, we just save now and buy it with all cash. It's a little bit of a different mentality maybe today in Switzerland, but certainly in the US that if you can borrow at low-interest rates, it might make more sense, especially if whatever it is you're buying, can you money. Let's take that example. Let's say you get a car loan and buy a car, but you use that car for work. Maybe you're even an Uber driver or something and you make more money than the payment. Well, then that's a positive cash flow, right? Holden: That's right. That's right, and you can expand that to all sorts of things. When people have the opportunity to pay off their mortgage quickly, like make double payments or something like that, one of the things that they have to consider is this, like what if they're paying 3% interest on that mortgage and they can invest the money and make say, a 5% return. That's not a whole lot more than that 3% they're paying on the mortgage. Well, maybe you don't want to make extra payments on your mortgage if, instead of getting that 3% return forgetting taxes, on paying your mortgage early, you can make a 5% return on an investment. [00:04:00] Kathy: I just saw a Facebook post, somebody saying, "I'm so proud of myself, I just finally paid off my home," and I understand that's a great feeling I'm sure for people to feel like I live in this home, I have no payments. I basically live here for free besides taxes and insurance and repairs which are still costly, right? It still costs to live in a home even if you've got it paid off, but let's say that home is $200,000. That's $200,000 that could be borrowed against at super-low interest rates and reinvested for more. Some people, again, possibly Dave Ramsey, would say that that would be irresponsible to get a loan against your primary. Again, that would be, if you're going to just go spend it on non-assets, on a vacation, or something, but if you're investing it for more than you're paying to borrow it, it could accelerate the payoff in a way, right? Holden: That's exactly right. I think about what happened in the run-up to the housing crisis in my neighborhood, there were people who kept refinancing their homes and borrowing more and more and more and buying. Like I had a neighbor who bought a Volkswagen Tiguan and a Harley Davidson. Well, neither one of those is really going to appreciate value. If you're using your home equity to pay for those things and the price of the house is inflated and eventually falls, you're in real trouble if you lose your job. The way I look at it is this, there's a psychological wage to being in debt. When you can pay off [00:06:00] your student loans and your mortgage and your car loan, and it just makes you sleep better at night. Perhaps it's worth it, perhaps it's better to just not have those debts rather than say, get a HELOC and invest the proceeds of the HELOC. You might feel like you're walking on a tight rope when you do something like that and you just want to maybe simplify. I totally understand. There's a lot of things I disagree with Dave Ramsey on, but sometimes I end up in the same place where he is when I just think in terms of peace of mind. Not having debt gives you peace of mind. Kathy: Sure, sure. The bottom line is if you know how to invest and you're savvy at it, and you could get a loan for 3% and you are 99.9% sure that you can get an 8% return elsewhere or 10% or 15% or 20% then, by all means, you would get that money and borrow as much as you could. You would borrow millions upon millions upon millions beyond your home. You'd use credit cards and so forth because you would know how to make a nice return on that money. It's like if you didn't know how to do that, then it would be like the idea of walking into a casino and saying, okay, I've got a $100. I'm going to gamble and maybe I will make another $100 and keep the $100 I started with and only play with the house money, but what if you don't? What if you lose $100 completely? It doesn't work. If you're going to gamble, you need to know how. You need to know that you're going to walk out of that casino winning. With real estate or with other investments that you understand, It's not so risky if you really get it, if you really understand it. If you know how to buy a house, understand what it [00:08:00] takes to renovate that house, what the after repair value will be, what the market is asking for, and the demand, and if you've done it before or working with someone who has, you have a pretty good chance of making that work. If somebody wanted to pay off their debts or just be sitting in cash, what advantage do they have as a cash buyer? Holden: There's a lot of advantages to being a cash buyer and really, first, you have to think in terms of the mentality of the seller. Why would the seller want to sell to a cash buyer? Among those things are as a seller, you don't have to wait for the buyer's mortgage lenders' approval or their timing. You don't have to worry about the appraisal, and you're just simply more likely to go to closing. When you turn that around, you think, okay, as a cash buyer, those are some of my advantages. It's a more sure closing because as a cash buyer, I'm not having to depend upon a mortgage lender's approval or quirks of timing where suddenly, oh, they have to put the closing off for a week. Don't need an appraisal and you're just simply more likely to go to closing. Kathy: That happened to us with our daughter when she was 24 and she had had a two-year work experience so she could qualify for a loan. I've talked about this before on the show. She was going to go buy a car because she finally had good credit. Well, she had great credit and showing income. I said, no, no, no, before you get that payment and throw off [00:10:00] your debt to income ratios, look at buying a house first. She was like, a house, how can I do that? How can I afford that? Just talk to a lender and find out if you can qualify. It turns out she could qualify for about a $300,000 house. She lived in Chico, California where $300,000 houses were actually available. It's pretty tough to do- Holden: Oh, really? Kathy: -out in California, but she could. She started shopping and was able to find houses that were three-bedroom homes that were cheaper than the apartment she was renting that was a two-bedroom with no yard. The light bulb went on and she got it. She found a really good deal on a beautiful house next to Bidwell Park, looking over the park and just riding bike distance to downtown and to her job. It was a former rehab that the person couldn't finish, so one of the bathrooms wasn't done and a bank wouldn't lend on it. The only people who could buy that property would have to come in with cash. Well, that obviously lowers the value. We said, fine, you can borrow from our retirement savings, it's going to cost you 6%. Then you can refi, we'll buy it all cash and then you fixed the bathroom and refi, that's what she did. That was an example of why having cash or someone who has cash can really help you get a great deal. She got that property for at least $50,000 under market because of the unfinished bathroom. She fixed the bathroom for about $5,000 and lived in that property for a couple of years, just sold it, and after paying us back and all the interest, she made over $100,000. That's pretty good to live for free basically as a 24-year-old and make money at it at the same time. Holden: That's a happy story for her. It sounds like a horror story for that seller. It's like, all they had to do was [00:12:00] invest $5,000 to essentially get a $50,000 return and they didn't do it. Kathy: They didn't do it. Oh, that is a really good point I hadn't thought about that. This was somebody who just, maybe hadn't calculated the cost of repairs and literally spent all their money and didn't finish the project. This is not uncommon and that's why, when you try to do a flip, you better make sure you know the cost and have reserves in place because there's always surprises with old properties. There could be things that you can't see until you start digging into that property and making those changes. Unfortunately, I do believe they just ran out of money because they had spent everything they had trying to do the repairs and probably couldn't get any loans. They did walk away from that probably at a big loss. Very, very important. The same thing I've seen that even with big syndications where you could syndicate, expect that the repairs on the apartment will be say $500,000, it's a much bigger deal. What if there's more to it and you need an extra million or something. If you're syndicating something big, you sure better have big reserves. You can always give investors their money back if those reserves aren't needed, but make sure you have it so you're not in a situation like that where you can't finish the renovation. With the crazy market out there, there's still a lot of people coming in with cash. What are some of the best ways to win that bid? Holden: All right. Let's say you need to get a mortgage and you're competing with these cash buyers. That can be really intimidating. Really one of the first things to do is in that intimidating situation is to present yourself as a really easygoing person, to be a not intimidating buyer. Someone who's a pleasure to work with, [00:14:00] someone whose offer is easy to accept. That's the number one thing, and then there's like elements of that. For example, when you say, make the offer easy to accept, what I mean is, keep it short and sweet and simple. Don't have a bunch of clauses in there like escalator clauses, just make it really short. Don't demand a response like within two hours, that just makes you seem like, oh, okay this person's going to be a real hard to deal with. Really just keep things really simple. Another thing is just make your best price offer right off the bat. Don't be counting on some back and forth where you're eventually going to pay more than your offer price. If it looks like there's a lot of competition for the house, you're going to have to get a mortgage, you think that there's going to be people offering cash, just make your best offer right then. Because one of the reasons is a lot of cash buyers, if they are looking to buy it as an investment to rent out, they might have a top price that is below what you're willing to pay for it if you want to live in that house. You can waive the appraisal contingency if you have enough money in reserve to pay the difference between the prices you're going to pay and the appraised value. Sometimes if you're going to get to mortgage, you can have some more flexibility, you can offer the seller a rent back. This is an important thing in today's market because it's really easy to sell a house, it's quick to sell a house. It's hard to find a house to buy [00:16:00] when you have all this competition. What happens is, people can sell a house quickly and then they might want to continue living in that house for a while while they're waiting to make an offer or close on another house. If you can offer to let them rent that house back for up to 60 days, that really might give you an edge. You can offer to buy as is and you can still have the house inspected, but you can tell the seller, look, this inspection, I'm not going to ask you to pay for anything. I'm not going to ask you to allow workers into your home to repair things and supervise them. I'm only getting an inspection to give me a yes or no, a go or no go thing. If the inspection uncovers problems that I don't want to deal with, then we'll just cancel the whole contract. If it uncovers problems that I'm willing to deal with, then we'll proceed and I'm not going to ask you to lower your price. Those are some of the strategies that mortgage borrowers can use to compete against cash buyers. Kathy: That's good information. I've read that maybe these multiple offers and multiple bids are slowing down, but I would say it's just slowing down, they're not gone and it certainly depends on the market. It's still really important to know that you're working with the right agent and that you are making the right offer because there's probably going to be some other good ones right alongside yours. Very good, all right. Any other tips in the time that you've been reporting on mortgages since 2001? Obviously mortgages are really, really cheap, right now it's cheap money. Do you see that changing? Holden: Well, they're going to continue to be low. My guess [00:18:00] is that mortgage rates are going to go up from here on. I would say, look, when you look at mortgage rates and when you make a prediction, you can predict that they're going to go up, they're going to stay about the same, or you can go down. If you can predict better than 33% of the time, you're doing pretty well and I'd say, I probably am right half the time. How sure am I that mortgage rates are going to be higher at the end of this year than they are now? Not really positive about that, but I think that that is the direction that we're going to see. The thing that could knock mortgage rates down or just keep them the same would be if the pandemic gets even worse and really drags down the economy domestically and internationally. If it's affecting supply chains even worse than they are now and shipping, you could see mortgage rates go down, I just have a hunch that that's not going to happen. That mortgage rates are going to rise but not by much. They're a little bit under 3% right now. I don't think they're going to be above 3.25% at the end of this year. I just think it's really fascinating is appraisal gaps. I mention that in passing but it's really a problem that a lot of people are dealing with, people getting mortgages. Essentially, let's say you offer $110,000 for a house and the appraiser says it's worth $100,000. Well, if you're going to buy 95% of the value of the house, suddenly you can only borrow $95,000. Instead out of putting 5% down on a $110,000 [00:20:00] house which should be $5,500, now, you're faced with putting $15,000 down. I'm throwing numbers around that might sound really confusing. Essentially, with the appraisal gap, you have to come up with cash to make up the difference between the price you're paying and the appraised value. In a normal market, what often happens is, if the appraisal comes in for less than you've offered to pay, then you'll negotiate with the seller to get a lower price. In today's market, that's just not happening. You're paying that price that you offered to pay, and you're going to somehow have to come up with that difference in cash. When you're making an offer and you need to get a mortgage, it really does help, especially if you want to waive the appraisal contingency, to have plenty of cash in reserve or easily liquidatable assets in reserve to make up that difference. Kathy: Yes. That's the challenge in a bidding war scenario. Yes, the price is going to be higher than what it would appraise for and most people who are overbidding have that cash set aside, which makes it harder for people who don't. Holden: That's right, and if you're going to waive that appraisal contingency to actually show some bank records and some brokerage records saying, look, I really can make up a difference of say $20,000 easily, if the appraisal falls short. Then just to let that seller know that, yes, you're not just blowing smoke, you really, really can make up that difference. Kathy: Yes. [00:22:00] All right. Anything else you want to let our listeners know? Holden: I think that's about all. Just to reiterate, the appraisal, not the appraisal, the flexibility about the closing date I think is really a key thing in today's market where there's just a lot of sellers out there who need to hang out in that house a little longer so they can close on the house that they're buying. [music] Kathy: Yes. Great advice. All right, Holden Lewis, thank you so much for joining me here on The Real Wealth Show and sharing your knowledge. Holden: All right, thank you. Kathy: Thank you for joining me here on The Real Wealth Show. If you'd like to get access to more free education just go to realwealthshow.com. Rich Fettke: The views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to realwealthshow.com. [00:23:06] [END OF AUDIO]

She's a mother of 6, grandmother of 19, and says her claim to fame isn't just all the green smoothies she's made, but a real estate empire that helps pay for it all. She started investing seven years ago and says: "If a stay-at-home mom of six can do it -- so can you!" Kim Bosler says she always had a passion for real estate but lacked the confidence to do it on her own. She finally got going by networking with other real estate investors who were doing what she wanted to do. And now her adult children are following suit. They are all investing in real estate. Join RealWealth today at realwealthshow.com to find out how to build wealth with new and renovated single-family rentals. Membership is free, and will give you access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you! TRANSCRIPT Rich Fettke: [00:00:00] You're listening to The Real Wealth Show with Kathy Fettke, the real estate investor's resource. [music] Kathy Fettke: If you've been listening to me for a while, and I've been doing this a long time, you know I've interviewed some really interesting people. You might be surprised to hear me say that today is one of my all-time favorite interviews. I'm Kathy Fettke and welcome to The Real Wealth Show. Our guest today prides herself on making more green smoothies than she can even count because she has 6 kids, and 19 grandkids. She's going to share today how she's built a real estate empire, made lots of mistakes, but made even better choices over the years, and is going to share how she's done that, how she's financially free, and how she's now getting her kids investing in real estate, and wouldn't change a thing. Kim, welcome to The Real Wealth Show. I'm so excited to have you here. Kim Bosler: It's so great to see you, Kathy. I just love, really, honestly, it's because of Real Wealth Network that's given me so much. It's all because of you that I got involved in real estate, and I really can't thank you enough. Kathy: Thank you. It hasn't been all rosy, has it? You started investing with us, seven, eight years ago, something like that. Kim: Seven years ago. Kathy: It was kind of the Wild Wild West back then. There were a lot of foreclosures, the property management systems weren't really in place and we've learned a lot since then, but oh, boy. You've had ups and downs. I received a lot of emails of you being frustrated, but here you sit, in 2021 ahead, right? Tell me a little bit about that. Kim: Right. I just want to thank you for your just patience and perseverance with me, too, because we were-- I think in some ways we were learning together. [00:02:00] There was some things you just can't predict in real estate but all in all, it was just a phenomenal, it has been a phenomenal experience. It started seven years ago, really. Actually, was about 10 and I was on the plane and a friend of mine, her husband had just passed, and she had nine children, very large family. She said, "The greatest gift that Gordon gave me was, he owns five properties outright, and that allows me to go see my grandkids." She was just saying what a gift that was. I thought about that for a long time and I thought, I came home that day and I really believe in vision boards. I thought, "That's exactly what I want to create too, somehow." Her husband was also professional, but you don't have the built-in pension. You don't know how long you're going to live. There's just so many variables. I already knew that having a hard asset was something that couldn't be stolen, and it could only grow in equity. I put down on my vision board, "I would like to own six homes." [laughs] She had five, so I thought maybe six would be good and I actually started laughing. I laughed out loud when I put that down and I thought, first of all, my husband was very against real estate. We'd done some earlier in life and had not done well. We didn't really have the money to invest at that time. We still had kids at home. We have a large family, lots of grandkids like you said. Even though he owns his own dental practice in California, it's really expensive to run a practice and there's a lot of overhead. Anyway, so I put that down and we started going. I had a really good friend at the gym, and he was always talking about his investments. It was so exciting. Then one day he said, "You know Kim, I think the best thing you could do would be to just hook up with Real Wealth Network." I didn't have a pad and paper and so I was running on the treadmill next to them and I was thinking, [00:04:00] Real Wealth Network, Kathy Fettke. Okay, I went home, I looked you up, we started going to live events. It was so thrilling. One time, I got my husband to go and it was properties in Texas. At the time, she was selling she had a package of six. I said, "This is it, Bruce, let's buy these six." He said, "Are you crazy?" I said, "No, they're $120,000." Now, remember, when people hear that I bought homes for $120,000, that was seven years ago, but seven years from now is going to be seven years ago. Kathy: That's a very good way to put it. Kim: It's just never too late and even then I knew those homes had just been $80,000 and so I still thought it was paying high, but it was still at the 1%. They were renting it for $1,200, which is hard to find now even, and so we did. Kathy: You bought all six? Kim: We did, and you know what? He said, "This is your deal, because I think real estate is really risky and this is going to be your thing." I had to take out a HELOC to do it. Think about that. For $25,000 down, I only had to take out $150,000 to buy six homes. Now, where else can you get a bank? I think someday we're going to tell grandkids about this. There was a time when you could buy a home for $120,000. The bank actually will take the risk of 80%. All you have to do is 20%. It's still cash flowing, at least $500. In fact, it was a little more than because it was on land-only for a year, and they weren't taking into consideration there was a building on it yet. They guaranteed the rents too, for one year. That's when property management did things like that. They don't do that anymore. For $150,000 we owned six homes and those homes now today are worth about $250,000. That was a really, really good investment but that [00:06:00] also taught me about doing the 1031 exchanges. I didn't know what those were. She said you own the property for, try to get new builds for four to five years, and then turn it around, and you don't have to pay on the capital gains. I just thought, "You're kidding. This is--" Kathy: How can that be? Kim: Yes, just the whole thing about real estate, there just really isn't anything I have found where you can take an average American, who's not a doctor or not anything special, and you can start investing, and pretty soon, over a lifetime, you can really grow your wealth. Now, I started late, I started at age 56 and still, within this short six or seven years, I've been able to grow a very large portfolio. It started with those homes in Texas, it started actually with Real Wealth Network, because you were able to vet these people, and get the best of the best. We had a network, we had people that we could talk to, friends, we could mingle and associate, "What are you doing? What's working for you?" In fact, I have the best CPA ever, and I also found him through a podcast that you did with Real Worth Network. It's just a lot of benefits to being involved in your group Kathy, and I don't know, I wrote down the many benefits of real estate right here this top 10 reasons, and maybe I can share those, but I am so grateful. Kathy: I would love to hear that. Are you still buying? Because I think you might be. Kim: You know what, the thing is, is that once you get started, if you're doing this plan of 1031 exchanges, you actually have to keep going. That's what's exciting about it. You can stop of course, but the opportunities are just always so prevalent. It's addicting actually, and it's a lot of fun. You start getting to know different people, and they bring offers to you. I don't know, it's really exciting. Yes, the places that I'm enjoying the most [00:08:00] are thanks to Ben, he was my counselor and told me last year, to do a couple of 1031 exchanges, which I did, and bought a lot of properties in Florida. Last year was such a sweet time. I didn't even know what I was doing and I just did it. In fact, they seemed too good to be true, so I didn't really trust it. If I had known what was going to happen this last year with real estate, I would have bought a lot more of it. Kathy: How many did you buy? Kim: Everybody would have. We bought eight in Florida. Kathy: Oh my gosh. That's amazing. Then there were some areas that were more difficult and some that you-- which is again, the nice thing about real estate, especially one to four unit homes that can be sold fairly easily if you're in the right area. There were a couple in Chicago that were more difficult. Why is that? There's a lot to it, but maybe just a couple of things you would have done differently. Kim: Well, just really briefly, I actually went on a home tour that Real Wealth put out. I went with Ben actually and we-- it was an incredible company, Mack was, and they just happened to go bankrupt. I don't know why but I know- Kathy: I think they over-leveraged. Kim: Probably, and we saw that. I was actually the one that noticed it because we weren't getting paid for four months. I looked up online and the news had just broken that day, I think. I emailed all my friends in Real Wealth and that was a little bit of a challenge, but it was something that was overcome, we could overcome, for sure. As I mentioned before, each one of those properties has still gone up in value. I actually made a lot of money on the home that I just sold in Chicago, and I have just three more to go, but I've got great tenants. They're all paying rent and one of them I had to put some money into. That was probably my [00:10:00] only bad property, was one in Chicago, where a tenant pretty much destroyed the place. Interestingly, if you've got a large portfolio, that's the advantage of it, because you've got other properties that nothing's really coming out of your own pocket, so to say. Kathy: If you really go into it like a business, and with any business, if you're going to be hiring employees, you need to have reserves, because what if you have a bad month? The employees don't get paid and you don't have a business. Any business, you've got to have enough reserves, usually 6 months, maybe 12 months. When you know these things can happen, and you've got the reserve set aside, it's just a business expense, and it's non-emotional. Kim: It feels non-emotional to me. What it feels like to me, because we don't really spend the money right now, is it feels like a giant Monopoly game. That was my favorite game when I was a kid. We used to stay up for hours and play it all night and sleepovers. I just loved Monopoly. That's what it feels like. Sometimes, there's something bad that'll happen and you go, "Okay, well, I've got this thing. I'm going to pass Go pretty soon." Go is payday when you're-- it automatically goes into your account if you've got good property management. That's really key is great property management, which I have really been blessed to have in areas. Chicago, I go through a few, but I don't regret anything. In fact, I have to tell a story about you, Kathy, that just shows your integrity. When I first got involved with Real Wealth, I know you already know what's coming, but there was a guy on your site that was only on there for maybe five days, until you realize, "Wait, this is--" Kathy: Until I bought a property from him, and realized it was a mistake. Kim: He sold me a property for $54,000 in Philadelphia and it was cash. I was so excited [00:12:00] about my first property. We went out there and he said, "You don't need to do an appraisal, anything like that. It's all great. You don't need to do an inspection." I was just really too trustworthy. Anyway, we went out and found out that it was a real disaster. Kathy, I still can't believe this, but you bought the property from me. Kathy: I still have that thing. Kim: I don't want to advertise that, because I know that that's not something-- Kathy: I don't do it every day. It was $50,000. Kim: I think you just looked at me and went, "This poor girl is so dumb that I'm going to help her out." Kathy: No, no, this was a long time ago, and our systems have changed a lot since then. It's because of this horrible experience, where this guy, and we didn't know he was doing this, but he was just telling people, "Don't worry about it. I'll vouch for. You don't need an inspection and you don't need an appraisal, so let's just stop right there." You never. If you're an out-of-state investor, you always get a third-party appraisal and you always get a third-party inspection. Get several. Get it for everything. It's going to be cheaper than buying a problem. Kim: Even on real properties, still, our new builds get an inspection and an appraisal always. Kathy: Absolutely. The wonderful thing about doing it on a new build is if they miss something, they fix it. Especially, if you do it right before the warranty is over, like you've owned it for a year, and then right before the warranty is over, get that inspection, and get them to fix it. Kim: It's so great and they're so good. The builders, they care about their reputation, and they want to fix it, make it right. The tenants want it right, too. It's really great. I cannot, honestly, Kathy, think of-- real estate just has so many benefits. I know that there can be some things that go wrong, but honestly, when you've got hard assets, like I said, it's [00:14:00] something no one can steal from you. Even if it burns down, you've got homeowners insurance. It's something that can be leveraged with 80/20. If you go into stocks, it's 100% your money, and then even that, it's not a hard asset. Kathy: If you think about it, granted we've had a really good 10 years, but that house that I bought from you, in retrospect, it was only about $5,000 to fix, but with you as a new investor, that was terrible. You're like, "No way." That house has doubled in value and it stayed rented, so it's actually been a pretty good deal. Kim: Oh, I'm so glad. Kathy: Isn't that funny? Then your Chicago properties, again, there was some real difficulty there, but you're walking away with more money. Kim: Absolutely. I'm thrilled with my purchases in Chicago in the long run. That's with any home I've decided. In the long run, real estate is always your best deal. That's number three. You've got a tenant that's paying off this 80%, and the bank is taking that risk. You've also got appreciation. This last year has been incredible. Every year can't be like that, but still, think 30 years down the line, even grandkids, it's just going to be amazing. You've also got upfront depreciation, and I didn't realize you can take all of that now. They've got this thing. If you've got a high income year, you can really help reduce taxes with the upfront depreciation. I think some of it can be up to like $25,000 off your taxes in a year, which is nice for home. Then you've got expenses you can write off. You've got great property management. You've got 1031 exchanges you can do. Also, I think besides it being fun, is number 10, and the most important, is you can teach your kids how to do it. It just gives them a lifetime of such security [00:16:00] that they can feel like they can do, too. When they see just me, a mom, doing it, they're like, "I can do that then." Kathy: It's really full circle, isn't it? It was 10 years ago that you met this woman who was so happy, she inherited-- not inherited, but was left with six homes to be able to live on. Here you are, now showing other people how to do it, here on the podcast, teaching other people. It's so awesome to see. You have six kids. What are they doing? Are they all investing now? Kim: Five are married, and the one we're taking to college, BYU, in just a couple of days. He did return from a mission in Korea. All of them do invest, and they've all seen it, and they want to do it. They're excited. They all have other careers, but it's something that they want to do on the side. I think most of them are right now. One is just getting out of the Air Force. He's a orthopedic surgeon. He said, "Mom, I really, literally can't wait until I start making money so I can start buying real estate." Kathy: Oh, with a VA loan, right? Kim: "I thought you were excited to cut bones." He says, "No, I am that, too, but--" Kathy: To cut bones. Oh my goodness. That's funny. Kim: It's nice to be able to just see them excited about that, because it's the American dream really, I think, is being involved in real estate. Kathy: I agree. Now there's two syndications, and I didn't really want to talk about this, but I also totally believe in transparency. In 2014, I syndicated two-- we had been doing a lot of land acquisition and building homes with experienced developers. Then the word got out, and our 40-year veteran real estate attorney said, "Oh, you should really look at this thing. [00:18:00] It's a wine village and the rent will be much higher because it's direct-to-consumer sales. There'll be tasting rooms and you could charge more." Anyway, we ended up syndicating. You invested in that, and then in another ground-up project. In the projects where we have bought land and we're just building houses and it's a simple plan, it's almost never on time and there's always challenges, but it's fairly simple, and banks understand it. With something like a wine village, as cool as it sounded, as excited as we all were, and what an amazing thing to be able to showcase these different wineries that could have visibility from the freeway, lenders just didn't understand it. Then of course, the fires, then COVID, and it just has been extremely difficult. In retrospect, I think for both of us, in this process of growing, I would never do that deal today because it's too different. It's just too different. Kim: I still think it sounds amazing. I look at some of the syndications on CrowdStreet, and things like that, and they look like they're trying to do the same kinds of things and big multi-family things, but we didn't know. What were you going to ask? Kathy: I was just going to say that we've learned both of us. It's been extremely hard for me. I'm still dealing with it. If there's anyone listening who can help us get financing to build this thing, or do something else with it, I think it actually would make an amazing RV park because you could have all the RVs around the already approved events center for weddings, so you could be little RV weddings with little tasting rooms around. There's so many things we could do for so much cheaper, we just need that creative financing person. I'm actually glad I'm talking [00:20:00] about it because who knows maybe that person will find us. It's right off Highway 5. Kim: I know, it's such a perfect location. It is. It's just, everything looks good to me. Kathy: What did you learn from it, Kim? Kim: Well, one thing I've learned is that we don't worry about it. If you make a bad investment, you move on. Of course, I have to complain to you first. Kathy: As you should. Kim: What are we going to do Kathy, and then you always have this yogi type of, just this beautiful way of responding and I'm like, "She's so mature and kind." Anyway, no, but you just move on and it's just like life. Life is life and there's nothing that ever goes just perfectly. Things happen and go wrong. Even when we have a big family reunion, and we all get together, there's little things that happen, and if you stopped and over analyzed everything, you'd be unhappy. You just have to say, "Okay, this wasn't a good investment, but look at all these," and focus on the ones that are so good, and then that catapults you to more good investments, but there's not a single person who's ever done real estate that's done everything perfectly and that I can testify to. If you're going to do this shoulda, coulda, woulda game, then there's not a single investor anywhere that can't say I shouldn't have. They look back and there's things they could have done differently to make more profit or do differently. You just can't worry about it. Kathy: I love that. Rich tells me that all the time, he reminds me because it's easy to go down that road. I just think, "Oh my gosh, if I just stuck with what I know, which is single family, and we did a fund back in 2009, I would have my private jet," which I don't really even want, so it doesn't matter. [laughter] Kim: Well, it's [00:22:00] all part of the game. When something doesn't go-- really, I'm glad I played Monopoly as a child because, there's no Monopoly game that goes perfectly either. It's just one of those little bumps and hopefully you make enough in the other investments that it makes it okay. I'm just so grateful that I bought the properties last year that I did in Florida. I wouldn't change anything really. It's just been a real blessing, all of it. Kathy: Oh, I love that. I do have one more question that I just got to ask, because I think it's so important. With your husband being a dentist and a high income earner, although I know there's also a ton of expenses there and that's a difficult business, my dad was a dentist, but you have been able to really offset his income with tax deductions by becoming this real estate professional. Tell me a little bit more about that. Kim: Well, I met Ryan Shellhouse through your podcast and he's phenomenal. I think that guy is just a walking brain, but he said, "Kim, you should become a real estate professional." I said, "What's that?" He said, "At least 17 hours a week, if you can dedicate to real estate, then you've got all these benefits. You get the upfront depreciation, you can write off all your travel." There's just so many tax benefits to it. I said, I want to be a real estate professional and so that was cool. He gave me that, but I thought at the beginning that I would be trying to fudge to get 17 hours, but I really do spend at least 17 hours a week now in real estate. It's passive. When you're doing active 1031 exchanges and taking care of your properties, there's just things you need to do. Part of it is looking for other properties and things like that, and listening to podcasts, and all those things count towards the hours. Reading real estate books. I have learned so much [00:24:00] about real estate, I just love it. Your book's amazing, Kathy. I do spend at least 17 hours a week doing real estate, but it's fun. I love it. It even includes the travel part. I go to see my grandkids and I'm writing that trip off, and none of them live by me anymore. I would die without being a real estate professional, I think now, because now, I can just go and it's all written off. Kathy: There's a lot of detail on that. We have webinars on our website at realwealthnetwork.com that will explain that further, and give you resources and referrals to these accountants and these teams nationwide. Kim: You have to log your hours. It's really important. It's not something you're just called and then that's it. Kathy: Yes, you got to do it right. You don't need a license, so you don't have to run out and get your real estate license. It's the amount of time that you spend on your properties, or learning about your properties, or researching, or traveling to them or any of that. You need to have enough, and certainly you do, to have it count, to make it believable that you work that much and you do, and you can't have any other job that you work more at. For many people who maybe don't have that job, but can feel like you have a job because the write-offs can be so enormous, that the amount of tax deduction you get is the same as what a salary would be. Kim: It's such a perfect husband-wife situation. If your husband wants you to be doing real estate and he's got the big 8-to-5 job, you can definitely be a real estate professional with your 17 hours a week. It's just a perfect combination for that type of thing. Yes, I've loved it. I've loved it. I'm so glad. I love to fly to Florida and I can write it off, too. Kathy: You're going to need a hotel to stay in to look at your properties and maybe then your kids also join you in that hotel. Kim: Exactly. Yes, they might be potentially looking as well. Kathy: Yes, that's true. Kim: It really is [00:26:00] a great family business. I've loved it so much. Thank you, Kathy. Kathy: That's really great. Kim: I wouldn't have known about it. See, if it wasn't for Ryan, I met Ryan's through the podcast. Every time I listen to a podcast of yours, I learn so much, Kathy. It's just amazing. Loved it. Kathy: Oh my gosh. Thank you so much. Any final words? What are you focusing on now and maybe it's just enjoying your family and your free time. Kim: I'm actually going to try to slow down a little and just get everything paid off. That is the goal. You start people out with say, 10 properties, because the Freddie Fannie gives you 10 per person. Bruce and I can each get 10, and we've fulfilled that now. I just want to pay those off and have something that our family can have in our portfolio. My kids aren't really going to need it. That's the nice thing. They're very independent, and smart, and able to invest on their own, but there's things that I want to, special causes that I want to donate to. I think that's what really makes it exciting. I don't think there's any real joy after a while in just accumulation. It's a very empty feeling, unless you have something that you specifically want to do for the good of others with that money. That's what brings you real joy. There really is not-- if that's all it is, is accumulation, then it's nothing more than a Monopoly game. I think when you set real intentions, God helps you. I don't ever say the universe, because I want to give credit to me, where credit is due. I think God helps you with those goals and He knows when your intention is good and He wants His children to be successful so that [00:28:00] they can contribute. There's a lot of people in a lot of organizations who need help financially, and that's what really makes life exciting, I think, to be able to help most days. Kathy: I can't wait to have you back on to hear about all the good you're doing in the world. Kim: Well, I just want to thank you Kathy, because honestly, it was Real Wealth, it was having that. Honestly, the organization just gives you courage. I had no idea what I was doing. I didn't know. You teach in your course, and you tutor, and you provide what's necessary, and there just couldn't be a better organization, and it's never too late, and you're never too old. Just remember, five years from now, it's going to be five years ago. Just start, it's always a good time to invest in real estate. Always. People used to tell me that and now I really know that. Kathy: I love that. All you have to do is pull out, just Google FRED, because that's the Federal Reserve and existing home prices, and go back 40 years, and you'll see this trajectory. All you have to do is ask yourself, do you think that's still going to continue based on the massive amount of money printing, the de-valuing of the dollar that increases hard assets? Yes. It's hard for you and me to sit here and say, is your $200,000 house in Florida going to be worth $400,000 in 10 years? Yes, maybe five years. I do hope more people can really get that message and protect themselves from inflation. Kim: Well, that's the great thing about inflation. I hate that the government's always messing with the dollar and now we are going to see, especially with all these taxes and everything, and just so much going on in the world, there will be definitely inflation, but you've got a 30-year fixed loan. Your [00:30:00] payment is not going to change. Even though everything else is going up you've got that permanent low payment, low interest rate, and still interest rates are historically low. I think they're going to stay low for a while, because just one tiny change with all the debt that we've gotten America, is going to be huge for our country. I think they're going to try to keep it low for awhile, so it's just not too late. I think now's a great time to still invest. Even though the 1% is harder to find now, you can still find places in Florida that are cash flowing. If you put 25% down, there's still places that are $500 or $600 cashflow. Kathy: I think you mentioned too, that you had done your underwriting, not really calculating for rents to go up, and I think that's a smart thing to do, but they have gone up and now you're way beyond the 1% rule. Kim: I never did that. I mapped it all out and I kept it at $1,200 in Texas and now they're $1,800 from five, six years ago, and that's just average. They've just gone up so much. It's crazy and it will continue to do that too, so that what else people can take into consideration when they're planning their portfolio. Kathy: Kim, it's been such a pleasure to have you here and you're just my favorite interview so far, so fun. It's so fun talking to you. I think people are going to really get a lot out of this. Kim: Love you and Rich so much. Thank you, and anybody thinking about it, just your first step is to sign up for Real Wealth Network. Start listening to the podcast and just do it. Just jump in. It's so doable. If I can do it, anyone can. Kathy: I love it. I love it. Take care and squeeze those little what, six one-year-olds that you've got. Kim: Can you believe it? All my daughters have babies in one year. [00:32:00] It's so great. Kathy: I'm so proud of my one grandbaby and I look at your picture, I'm like, "I wouldn't even remember each of their names." (laughter) All right. Take care. We'll talk to you soon. Kim: All right. Thanks, Kathy. Kathy: Thank you for joining me here on The Real Wealth Show. You can go to realwealthshow.com to get access to those in-depth webinars on how to really save taxes by owning real estate, becoming a real estate professional, which markets to buy in for more cashflow or potentially growth, which teams have the highest ratings from our over 56,000 members, property managers, and property teams who can find you really good properties which is hard to find in some of the fastest growing markets. You can get all that information at realwealthshow.com Rich Fettke: Views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities, or to make or consider any investment or course of action. For more information go to realwealthshow.com.