Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.

00;00;00;00 – 00;00;23;00
Unknown
All right. Well, hello, everybody, and welcome to replace your income with Kevin and Steve as we have. Well, Steve, we are really excited to announce our new brand partnership. Coca-Cola has decided to endorse us. Yes, and we love to do that. Yeah. No, I don’t know. But we’re doing it. No Diet Coke and Coca-Cola has not endorsed this, but we think they should I think they should send us gazillions.

00;00;23;03 – 00;00;51;29
Unknown
I think that in theory, they would endorse all the things we talk about here because we’re awesome. So I think that like, that makes it like a sort of tacit endorsement, right? I think that. Does that make sense? Yeah. For those of you just listening, you missed a perfect view of Steve showing off his Diet Coke. What would your life look like if you could replace all of your working income with simple and conservative investments that could do it for you?

00;00;52;01 – 00;01;17;23
Unknown
Over the last 13 years, we’ve helped thousands of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their work income with real estate investment income. Each week, we’ll be pulling back the curtain on the ins and outs of real time retirement based real estate transactions that will transform your financial future even if you have no real estate experience.

00;01;17;26 – 00;01;42;29
Unknown
This is replace your income with me. Kevin Gleason and Steve Earle. Well, we are excited to be here. Now this is going to be a little bit of a bonus episode. So Steve and I were talking about something that our clients have really built. We’ve had this conversation a lot recently. Look, we you know that we come on this podcast and we try to do a few things like number one, we always want to be giving you sort of fresh market information, right?

00;01;43;02 – 00;02;07;20
Unknown
We know that even though somebody may be listening to this podcast 20 years from now, for those of you who just downloaded it today and you’re listening to it, you kind of want to know what’s going on in the market right now. So because we are very actively doing real estate deals on the regular, we are kind of always in the midst of these transactions and understanding the ins and outs of how we’re getting deals done and what we should be doing in any given market scenario.

00;02;07;27 – 00;02;30;20
Unknown
And what are those things. That’s been coming up a lot lately because we’ve seen interest rates continue to climb as we sit and record this today. I think that the average interest rate on a 25% down payment, single family residence is almost eight and a half percent. Right? It’s like 8.375 or something on an investment, on an investment property and on a primary residence on an investment property.

00;02;30;21 – 00;02;49;27
Unknown
Now, Stephen, I’ve told you a hundred times that that is not a high interest rate. It’s just higher than they were, but it’s closer to normal than it was during COVID when we had two and 3% interest rates. But nonetheless, an 8% interest rate is still higher than a 6% higher than a 5%. And so people obviously are concerned.

00;02;49;27 – 00;03;14;19
Unknown
Now, we also know that smart investors are buying right now. They’re not waiting because that was always the right time to buy. But we wanted to give you a little bit of the ins and outs of what should you be doing? What are we doing in the midst of these real estate transactions when it comes to working with sellers and getting some seller concessions and looking at the potential to buy down the interest rate on a loan to make an investment purchase just makes sense.

00;03;14;19 – 00;03;29;09
Unknown
So, Steve, I’m going to turn it over to you because this is really kind of I don’t know, it’s you’re in the mix with these transactions far more than I am. So let’s talk a little bit about kind of what’s going on and why would somebody want to buy down their interest rate? Why would we want to get seller concessions?

00;03;29;14 – 00;03;57;27
Unknown
And what is the impact on an investment property purchase if we go that route? Yeah, to provide some context, the reality is is interest rates today hit a 20 year high. So from a short historic period of time, interest rates are higher than they’ve been then in the last 20 years and that is significant. If we back up time, if we go back 120 years to the beginning of the, you know, the 1940 years.

00;03;57;29 – 00;04;23;26
Unknown
Yeah. You know, we are historically like right about there. Like when you look at averages. Yeah. Regardless, you know, the interest rates being what they are, it is tough to buy real estate because payments are significantly higher, whether it’s a primary residence or whether it’s an investment property. One of the goals that we have for each of our properties is to make sure that a property has positive cash flow.

00;04;23;29 – 00;04;43;22
Unknown
You know, we’ve talked a lot about the idea that cash flow of the four different streams of income, that single family properties can bring or do bring cash flow is the least among them, but it is still very important and still critical. And so one of the goals and objectives that we have is that we have minimums for every property that our clients buy.

00;04;43;28 – 00;05;04;19
Unknown
It has to have positive cash flow is just part of one of the principles that we strive to adhere to. There is an argument like you’ve spoken about in the past, that there is an argument for having negative cash flow, right? But we’ve just chosen to kind of draw the line at having positive cash flow is one of the benefits that we bring to the table.

00;05;04;19 – 00;05;21;16
Unknown
And to be clear, like, you know, when you look at our ten year property proforma, that does not necessarily mean that an approved property will have a positive cash flow in year one, Right? Right. You may be just a couple of dollars negative in year one, but we’re looking at the averages on the property. I kind of want to clarify that.

00;05;21;16 – 00;05;40;27
Unknown
Yeah. Yeah. And so now having said that, there is a way to mitigate the 8.375 or higher interest rate that you might be facing today. There are ways to lower the rate. And I think that everybody understands and knows, hey, you can buy the rates down. Yeah, but we go about it from a little bit unique perspective based on what’s going on in the market.

00;05;40;27 – 00;06;05;12
Unknown
Two years ago, could you ask a seller for concessions and to ask them to buy the rate down? Oh, absolutely not. In fact, the reverse was happened. Yeah, they’re asking for extra money. And so with every market, you have to kind of tailor your offers to what’s going on. And so what we’re doing on every single offers, we’re asking for seller paid concessions up to 2% of the purchase price, because that’s what you can do from a lending perspective.

00;06;05;12 – 00;06;31;11
Unknown
They allow that. And and so, you know, a $300,000 home, you can you can get about $6,000 in concessions if the seller is willing to pay a 2% interest rate by then for the buyer. And so in today’s world, as of this week with our lender, it’s costing about 70 $500 to buy an interest rate down by 1%.

00;06;31;14 – 00;06;52;13
Unknown
Now, that’s a lot of money, but if you get the the the seller to contribute 2%, that’s about $6,000. Yeah. And so you want to get the lowest rate possible. So that’s the first thing that you do, number one, right, to get that interest rate down from you know that 8.375 down to hopefully into the low sevens or or lower.

00;06;52;20 – 00;07;12;08
Unknown
Yeah. And so number one the seller can can help out their number two if you’re a buyer of either a primary residence or especially if this is an investment property, one of the greatest investments you can make is to buy the rate down from your side of the transaction to the extent that you can there. There are diminishing returns.

00;07;12;10 – 00;07;33;01
Unknown
The more money you spend, you’re not just going to get dollar for dollar lower interest rate. So you got to kind of find that magic number. And so you may spend, you know, another several thousand dollars, but let’s say that you get the seller to buy it down to three quarters. And let’s say that you’re going to buy it down an additional, you know, 0.25 or even lower another half a point.

00;07;33;04 – 00;07;54;25
Unknown
And let’s say it’s going to cost you, you know, $4,000 to buy the rate down. So you get a full point discount. So now you’re at 7.3, seven five, which can get you above that break even point where you’ve got a little bit of a positive cash flow, especially when you extrapolate it over ten years. So we like to look at it from the standpoint of this is not a cost.

00;07;55;01 – 00;08;13;26
Unknown
A lot of people think, well, gosh, like I’m going to I’m going to have to spend $4,000 to get the rate down, like I don’t want to have to come out of pocket. That’s going to be this big expense. Let’s look at it from the standpoint if you’re to spend $4,000 and that increased your cash flow by, let’s say, $75 per month.

00;08;13;26 – 00;08;42;12
Unknown
Yeah. So 75 times 12 months, that’s $900. And if you spent $4,000 to get that $900 of increased cash flow, divide that 900 against the 4000 at two, that’s a 22.5% return on your best money. If I came to you and I said, Kev, if you’ll loan me $40,000, I’ll pay you 22.5% interest on that loan. I’d be like, okay, let’s go.

00;08;42;12 – 00;09;04;09
Unknown
Right. So that’s that’s going to be one of the the best investments you ever made. That’s right. So that’s the way that we like to look at the interest rate buy down from the buyer side of the equation is looking at it as an investment. I’ll share a personal story. A couple of years ago, I refinanced one of my properties.

00;09;04;09 – 00;09;19;25
Unknown
It happened to be a most of my investments are single family homes, but I do own a four plex and I refinanced it a couple of years ago. And I and I just I wanted to buy that rate down, which I did. I got a four plex down to 2.9. 9% is back in the day. I had to buy it down quite a bit.

00;09;19;25 – 00;09;44;18
Unknown
I spent like $12,000 to do it. But my my savings, my, my savings was $435 or $450 per month, which means my cash flow went up by 40 or $50. And so when I extrapolated that out, it was like a 36% return on investment. Yeah. So from personal experience, like I’ve done that on my properties and it’s been one of the best investments that I’ve ever made from that perspective.

00;09;44;18 – 00;10;02;16
Unknown
And so this is the idea. This is a concept that you don’t always have to just accept what the market is giving you, right? You can get a little bit creative, you can get a little bit depending on what the market will give you on the front end. If the seller if the market is such that a seller would be willing to contribute, bam, that’s bonus number one.

00;10;02;19 – 00;10;36;18
Unknown
Number. Bonus number two is your willingness to see this as an investment. And when you combine those two, it can be very powerful. You can buy your rate down by at least 1%, maybe more than that for for about 70 $500 in today’s market. You know, it’s it’s the middle of October 20, 23. And so it’s just a it’s it’s a it’s a philosophy, right, of looking at how do you look at that a challenge and turn it into an opportunity so you can keep moving forward.

00;10;36;18 – 00;11;06;11
Unknown
Well, and and I just to comment on that, just using the word like you did, investment instead of expense or cost makes a huge difference. And that would just be a little recommendation I’d give to anybody as your exposure and seen your real estate portfolio. Don’t have something, be a cost, have it be an investment. Because what it does just in your mind and the way you interact with it and what that does for you energetically is such a drastic shift.

00;11;06;18 – 00;11;23;02
Unknown
Because if you’re looking at it as a what do I have to pay, what’s the cost to buy down my interest rate, There’s this negative energy that’s attached with it. When you look at it as an investment and then you put it in the you put it in into numbers in the way that you articulated it. Stephen, you’re looking at the return on that investment.

00;11;23;02 – 00;11;41;17
Unknown
All of a sudden that makes sense. And so that is the shift, right? It is a paradigm shift and a mindset, which is that in microloans to millions, the paradigm shift was chapter seven seven. Yeah, that’s good to remember. Look, there’s been a lot of rate writing that’s happened in the book, so that’s such a powerful concept, right?

00;11;41;24 – 00;12;04;19
Unknown
So, so being able to get yourself to see that, think something in a slightly different light, a different perspective, allows you to move forward in a very powerful way. And and if you if you at this point, hopefully our listeners have watched the five my five and a half minute video on the on the market today. It’s like today is a fantastic time to be buying.

00;12;04;23 – 00;12;25;28
Unknown
You don’t want to miss out because it’s like you see that interest rates are 8.375. So you go back to bed and need to take action. And the reality is if you looked at things a little bit differently, you took advantage of this front in a back in interest rate buy down. You get to move forward and in actually not lose out on the opportunity cost of as much as $50,000.

00;12;25;28 – 00;12;47;13
Unknown
That’s right. In as little as three years. I’m glad you said that because I was just going to remind everybody there is an actual physical, real dollar cost to not taking action. So if you can look at it and say, if I can get seller concessions, if I can contribute and invest a little bit to buy down the interest rate and what my return on that activity will be.

00;12;47;15 – 00;13;19;04
Unknown
Now, you’re also it’s not just the return on in your example, you put 4000 in and your return was, you know, 20 something percent with the 900, an increased cash flow or whatever. It’s not just that, it’s that, it’s that. Plus if that’s what got you off the bench to buy the property that is going to increase that appreciate 30, 40, $50,000 a year for you plus all the other additional benefits that activity, that action has a real, actual, real dollar consequence in either the positive or the negative for you.

00;13;19;07 – 00;13;33;15
Unknown
And if it can help you get off the bench and dive in, that’s why we want you to do it. And so that we thought we’d just jump on, do a quick bonus episode and give you those principles. If you have any questions. If you are a client and you have any questions on what that looks like, contact your coach.

00;13;33;21 – 00;13;50;25
Unknown
They can talk you through it. If you are not a client and you’re like, I want to learn a little bit more about that. I highly recommend you go to the YouTube channel, go and take a look at Steve’s five minute video. If you haven’t watched it on why invest in the market now? Feel free to reach out to us at the company and we are happy to talk with you and share whatever we can with you.

00;13;51;00 – 00;14;05;06
Unknown
Hopefully it will be beneficial and impactful. We hope this was a good quick little episode to shift your mind a little bit and that it has you taking a little bit more action sooner than you otherwise would have. That’s all for now. Any last things you want to mention, Steve? None at all. We’ll talk to you guys soon.

00;14;05;12 – 00;14;09;20
Unknown
Take care.