Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
We analyze portfolios with our clients. At minimum once a year, we’re going to go through and say, based on what the market is showing us, here’s what we’re going to do. Here’s your equity, here’s your inflation growth, here’s all the things that are happening. Let’s use some of these tools, whether that’s to sell on a 10th grade tax deferred exchange into maybe trading up Yeah, or usually not selling if it’s performing. But we can do a cash out refinance or a HELOC or something to just go do more. It’s awesome. 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?
Over the last 13 years, we’ve helped 1000s of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their working 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. This is replace your income with me, Kevin claesson, and Steve Earle.
All right, well, hello, everybody and welcome to replace your income with Kevin and Adam. Wait, what would you do Steve? animate Steve, we have Adam here. Steve’s gone. Steve, where did you go? Just kidding. I’ve got an amazing guest in studio I say in studio. But Adam, it’s just my office, right? But it feels a lot cooler for me to say in studio. It will it does. And you know, it’s so funny. People will walk in my office and they’ll be like, Whoa, the microphones Is this where the podcast is recorded. Like it’s some sort of sacred ground.
Listen, it’s just my messy office with a couple microphones, guys, that’s what’s going on here. But we’re gonna call it a studio, because then I feel like I’m a successful radio show host or something like that. And that makes me feel like I’ve done something with my life. You cool with that? Cool. Welcome to the studio. Adam York. Guys, we’ve got a great episode today. Thank you so much for joining us. We love it when you’re when you come to hang out with us. We love doing this podcast. And this is going to be a really cool episode. I know I say that every time. But I really mean it every time because it’s always a cool episode. But thank you for listening.
Thank you for following Thank you for subscribing, and rating and review. And if you listen to this podcast, and you have listened to more than three of the episodes, my guess is you might like the podcast. And if you like the podcast, I would love for you to go to Apple. And to give us a five star review. Five stars is the appropriate amount of stars. I believe there’s other options on Apple podcast, but five stars is frankly the only acceptable option. So make sure you go and rate and review the podcast, it helps the platform know that this is good content and that you want to hear more of it. And then it also just makes me feel good. And I need that.
Okay, I just need to see your five star review, guys. But we have a really cool topic today. So I have in studio, aka my office with microphones. With me, Adam York, Adam, What’s up, dude? What’s up, man? How are things going, Kevin? Dude, this is going to be awesome. I’m excited for this episode. So Steve is not going to be on with us today, Adam and I are hanging out, we’re gonna have a really cool conversation, you guys are not going to want to miss this, this, this is going to be a spin and a take on a financial principle that is very important to real estate.
That is gonna kind of blow your mind. And I got to preface this. So Stephen, I did it did an episode on a similar topic a number of months ago. Okay, I’m not gonna name names. But there was somebody out there who heard a statement. Well, it was actually a statement that Steve made in the podcast, that we then use that statement in the copy that we sent out on the email that told us I told everybody that the podcast was out, right? And it said that inflation is necessary or something like that.
Right? So we were talking about inflation, and we were talking about the fact that it was necessary well one of you amazing listeners out there thank you so much. You responded to my email and you you were a little upset that we would say that inflation was anything other than you know the the the depths of hell incarnate. Right. And, and listen, I look, we talked about how inflation is a real thing, and that real estate can hedge inflation. But I’m going to blow your list. I’m not ABS gonna blow your mind today because Adam came into the office the other day, and he was like, hey, Kev. I’ve been thinking about this. And he and I do this a lot.
So Adams, a good friend of mine, Adam, actually we live in the same neighborhood. We’re like a couple doors down. I think we’re having a shared date night with the wives and other people from the neighborhood this Saturday, okay, we’re playing what’s in the box or Yeah, okay. It’s gonna be so Adams a friend, but Adam works for our company. So Adam and I’ve been friends, Adam and I talked for the first time what how many years ago, about 12 years ago that 12 years ago, Adam had just returned from serving a mission for our church, and he was kind of getting things started in his personal life in his business life.
And he has always had this remarkable drive this entrepreneurial fire that cannot be quenched and he had stopped Already to really look at investing in real estate. Now I hadn’t talked to Adam for a really long time. And when we moved in to the neighborhood that we moved into what we were over, like looking at the house, and Adam walked by and kind of waved, and I’m like, I think I know that guy. And then we were like, I was like, Whoa, it’s Adam. I remember Adam. And then we as a result, we become friends. Because we’re in the same neighborhood, Adam was working in corporate America, and Adam decided that he was maybe ready to make a shift.
But what was cool is on this one, fateful day, in the parking lot of harmans, on 800, North in Orem, Utah, I pulled into a parking spot, and Adam was like, right there, we like wave to each other, he was getting ready to go into the bank to close on a home equity line that he was putting onto one of his investment properties, right? Is that what it was, it was a home, because he’s very active investor, he’s working in corporate America, we start to talk, as we’re talking through the windows, he kind of mentioned that, you know, things are changing with his corporate job, he was very successful in his corporate job, and he was like, things are kind of changing. I don’t know if I’m gonna be real happy about it. And all of a sudden, it was like, somebody dropped a piano on my head. And I went, wait a second. Adam, Would you ever consider coming and working for our company, and he kind of paused and you guys, we didn’t have a position for Adam.
But we were like, I thought that we have to get that we’ve been talking for a while of needing to expand the position inside of the company. That’s the account executive position, which if you’re a client out there, if you’ve worked with us, you know that that position is incredibly important to the whole client experience, the whole transactional experience, and we didn’t really have room for another account executive, but I went, there’s no way we can’t work with Adam, because of your track record.
Because you’re such a successful investor, because you’re so entrepreneurial minded, because you’re such a motivated guy. And because you really care about people and their experiences, they get into real estate, and we made it happen, we were able to bring Adam into the company full time where he is contributing at an unbelievable level, he has been fundamental and instrumental in changing aspects of what we’re doing to improve the customer experience to improve the transactional experience at Adam.
I you know, I love you, as a friend, I am so thankful that you’re here it done for you real estate, that you’re dedicating your time and talents to this remarkable group of humans that are listening to the podcast right now. And for you to come into the office and to say I had this really cool idea that I was thinking about, and for us to be able to come on the podcast and share it an idea that may kind of shake your frames if you guys are listening, you’ve never thought of inflation this way is just so cool to me. So thank you so much for coming on the podcast. Thank you so much for being here, man.
For sure, man. No, I love it. Thank you. Thank you for the introduction. I’ve listened to the podcast and every introduction you give us always so on spot. I love it. And honestly guys, my my rendition of How to Win Friends and Influence People that book, it just says, Hey, bring Kevin around with you to meet new people. Let him introduce you. You’re gonna think way higher, I promise. Okay, for those.
That’s awesome. I love it. Thanks bad, you’re awesome. Well, okay, so we’re gonna dive into this thing. So okay, look, you guys, we’ve talked about on the podcast before that. One of the best things about real estate is that real estate hedges inflation, right. And we talked about that, because real estate is a tangible asset. And so inflation, we obviously know inflation is happening right now just a reminder of what inflation is.
Inflation is nothing more than too many dollars chasing too few goods, right? That’s the reality, there’s more money in the market, than there maybe should be, the government prints it at a remarkable rate. And as a result, we have more dollars in the market with not enough goods to kind of make up those. So we have to raise prices. So here’s the deal with real estate, if everything is costing more if labor is costing more, if materials are costing more, if home prices are going up when you own real estate, that real estate moves up at the rate of or maybe even ahead of inflation.
So that tangible asset can actually hedge inflation. But then Adam, you came in the other day, and you said, Look, this is the way I look at inflation. With my real estate, I make inflation my partner, it becomes a financial benefit. And here’s the reality, I think that we have to acknowledge Adam, inflation is not going away. Inflation is here to stay. I don’t know when it’s going to be corrected. And you’re going to talk about historically, some of the things that led to inflation going off of the gold standard, what that’s kind of yielded in terms of fiat currency and what we deal with today.
But then in relation to real estate, and how we can actually use whether it’s a disadvantage or not, as most people think about battle with inflation, if it’s going to be here, we might as well say Okay, look, the table is set. Let me see how I can move these chess pieces around so that I can win the long term income replacement and financial health game and that’s exactly what you’re talking about with this idea of inflation. So I’m ready to take us on a ride because Cuz you shared this with me and it blew my mind. So let’s kick this thing off. And I want you to start by talking about how is it that one can make inflation their partner when it comes to real estate?
Good question Kevin. Thank you. And we were talking a minute ago about how this part of our company is that we like to just give people a little bit of a paradigm shift a little just shift in perspective Sure, kind of like any of you that have read Rich Dad Poor Dad it just like it doesn’t blow your mind we held opposite it is a really nice little shift in perspective. And honestly, that’s what I’ve learned from so many things in real estate investing and with done for you and with what we’re trying to accomplish.
When I saw this concept, I was like, Oh my gosh, this this makes absolute sense. It’s this shift in perspective and real quick that shift in perspective is so critical you guys so there’s a talk that I know Adam and I have listened to multiple times by a man that we greatly respect named Dieter f uchtdorf. And he talks about a matter of degrees and he was an airline pilot and he talked about this story of somebody that was that was an airline pilot who was kind of picking where they were going to fly to and their their line was off by just a small fraction of a degree but four hours later it they ended up flying into a mountain right so what’s cool about a shift in perspective and and a shift is when we shift our perspective by just a matter of degrees right?
We know inflation exists when we look at it just a little bit differently the trajectory that it can put our financial lives on and that is not just for inflation, but anything but guys this podcast If nothing else, if it can shift your perspective by just a matter of a few small degrees that trajectory in line that it puts you on creates crazy results down the road perfect no And on that note that you bring that up but but this little shift in perspective, I promise you you’re not going to hit them out and just well oh good day we get to avoid them like that. No, but check this out.
I in my role, obviously I’m kind of a consultant and account executive where I work with a lot of existing clients and new clients that are coming on to just take part in our system to acquire rental real estate and do what we do. I talk with a lot of different people that say house price housing prices are going crazy it’s just it’s crazy how fast house prices are going up this and that and I want you to think about this for a second. house prices are going up like crazy.
But in terms of what in terms of US dollar Yeah, yeah, right right date that’s a it’s it’s totally based on dollars right? Right. Yeah, that’s it’s it’s how many dollars will you have to park with or go get financing for in order to buy a house right? So remember, dollars right now are a devaluing fiat currency. Yeah. Okay. I’m not gonna get deep into economic history. But let’s take a look at this.
And real quick let me just say this because I studied political science in college and I remember one of my favorite classes was this international economics class. And honestly, as a college student, I didn’t know what a fiat currency was. So just because we’re going to talk about it, a fiat currency is a paper money that does not have intrinsic value, it is assigned a value right? intrinsic value is something like gold right? The United States of America used to be on the gold standard. And so the dollars that were floating around in the economy were backed by something tangible and real. A fiat currency means it is not backed by something tangible and real. And it can flow and go with the whims of governments and just sort of perceptions of markets.
One of the best examples on this earth I think, is in Dumb and Dumber when he’s got that briefcase of money. Where’s the money? Those are as good as those are IOU Yeah, that’s right. That’s 35 does doc Are you better hold on to that one? Yeah, that’s a great example pickups. Ah, good. That’s good. Hey, this the first time we’ve talked about Dumb and Dumber on the podcast, that contribution alone should win an award out of here it comes on the line and Dumb and Dumber.
Now it’s cool so so let’s look at this for a second because remember back in 1971 richard nixon I wasn’t alive then so I have no positive crook that’s my richard nixon impersonation. But like any politician he’s gonna take a piece of crap and spin it in a way that looks like just the best cake you’ve ever seen in your life absolutely right he did that and came out to the world and said hey you guys have got this great idea we’re going to remove gold from the back of the dollar so the Fed can have the printing rights it just print into oblivion this US dollar now we’re going to call it a fiat currency. But if that happened in 1971 and literally took us off the gold standard has not been in real money it’s been developed since then.
That’s right. Okay, so that being said, I’ll look at some numbers here in a second but then this is kind of an abstract thought but I want you to just bear with me for a second Okay, we’re going to do some comparisons from median home prices and US dollar to commodities Oh, that’s a cool way to look at it. This is kind of cool watch this so 1970 obviously a specific day because that was the kind of last time that money was I want to say real more real than right today was at least backed by something tangible right right and this whole remove gold from the back of it that’s happened multiple times or attempt since the Great Depression, but it’s never really stuck until 1971.
Okay, so in 1970 Now I know there’s going to be some different engineers or clients out there like the know they know their numbers, they’re factually Well, you guys can respond to me and say, Adam, this factor is wrong. That’s fine. I get it. I didn’t just trust the internet being true. Is this is it everything On the internet true I thought so. Okay, I looked at multiple different resources did a little bit of a deeper search to average out some numbers, we get some more accuracy, but we’ll see.
So I’m going to give you some numbers here. In 1970. A home in the US got average us obviously, if you’re in different markets, it was higher and lower, but us average was $22,000. And US dollars. Okay. 2021. It’s about 348,000. Okay, now, let’s look at this for a second. What else I looked at was gold, and barrels of oil. Okay, the same exact timeframe, 1970 and 2021. And again, it’s that kind of abstract, but just think about this for a second. In 1970 gold per ounce was $35. So to buy a $220,000 house, it would have taken 630 ounces of gold to buy that house.
Okay, now fast forward to 2021 when Gold’s about 18 $100 an ounce yet, the median home price is 348,000. It takes 190 ounces of gold to buy a house today. Okay, so be debt again, 630 ounces of gold, the same gold, the element gold, it took 630 ounces to buy a house in 1970. Today, it takes 190 ounces to buy a house, right, approximately based on the price of gold in 1970. And the price of gold per ounce today. It’s crazy.
And now let’s fast forward a little bit and look at barrels of oil. Okay. See the 1970 was about $3 into the 21. It’s about $75. Okay, the quantity for median home price in 1970 was about 7300. I rounded up a little bit even numbers, but 73 7300 barrels of oil, right? What about your home in 1970, right, and you would have to find a title company that would accept $700 per barrel of oil. But it really came out today, instead of 7300 barrels of oil, it takes 4600 barrels of oil to purchase the median price because of the price per barrel. By the way, I know oil is more expensive, because we just went California. And it was like the first stop I made in California. I legit paid $5 a gallon for unleaded awesome, still fun. It was so great. Okay, but really, this is so okay, we know inflation is a thing. We know that the average home price in 1970, before we went off the gold standard was $22,000.
The average home price today approximately you said 348,000. And then you did this really cool thing you said, if we were to buy homes, with commodities with something tangible that that we can track the value of back in 1970. And today, you said in 1970, an ounce of gold cost $35. And back in 1970, it would have taken 630 ounces of gold to buy a $22,000 home. But today, in 2021, where the price of gold is 1800 an ounce, it would only take 190 ounces of gold to buy that same home. And then you did the same thing with oil. And you said if oil was $3 a barrel in 1970 would have taken 7300 barrels of oil to buy a home before we went off the gold standard. And today and 2021. With barrels of oil being on average around $75 a barrel, it would take 4500 barrels to buy a home. I have never, ever considered that because nobody thinks that way. We always think in terms of dollars, right? But now I’m really curious because that is fascinating to me that today, it would cost less intangible assets to based on what they’re worth today and what they were worth then.
And I think we could probably make the argument that part of the reason is that it takes more dollars to buy gold today or more dollars to buy oil, because there’s an excess of dollars. But nonetheless, if we just make that correlation of how much a commodity cost then versus now and apply that to real estate, it gives us a different perspective. So I’m really curious to see Now where do you take the conversation? So if we take all of that as a given. So then what’s the next piece that we need to understand?
Let’s talk about a couple different just economic facts of the case inflation is happening. Of course, the Federal Reserve is not going to come out and say, oh, guys, here’s what it really is. 15%. Okay, they’re not going to say that, that makes him look bad. Right. Right. But I think a lot of us are starting to lose faith in what’s going on the media? Well,because we know that there’s inflation numbers that they’ll report, but there’s certain aspects of inflation that they don’t report. Right, right. Like they don’t report the fact that now Yeah, toilet paper costs, you know, 6% more than it used to.
But what they don’t tell you is that that roll of toilet paper now has 20% fewer sheets, but it costs 6% more, right? That’s the other part of the relation to
your income that might not have done anything at all correct, right? Except for the new employees. You’re eating $25 at chick fil a and I’m sorry, I don’t mean does anybody but that being said, it’s like that not only are they printing money into trillions and trillions of dollars, they’re now stuffing it in our bank accounts, right sure that inflation is going to hit.
And now I understand some of us on this call didn’t qualify for any of that. That money that stimulus, whatever. Yeah, some of us, most of us, I would think on this on this podcast. We didn’t need that money, but they’re so sorry, in our bank account. That’s right. But anyways, that’s where we are today. So it’s just it’s been crazy. Let’s talk about some of the benefits of inflation. For you, as a real estate investor, or landowner, I made a desert lady like a landlord and gender, so is going to increase the value of your home. Okay, now, of course, we’re talking in terms of dollars, which is fine, but it’s like, Look, here’s the rules of the game. Let’s play within the rules and do well, let’s fix this, right? Exactly, yeah. Okay. So the value of your home is going to increase. as that happens, it gets more and more difficult to buy a home, which I don’t want to say that like someone’s bad is our good. Yeah, same time, that produces more renters totally, that’s the market that you’re renting to.
As a landlord, I always say you want to own supply where demand is high. And I always say, everybody’s in real estate, we’re either on the side of the coin, where we’re making money on real estate, or where we’re making somebody else money on real estate. And so if inflation is going to happen, we want to own that supply. Because if we know what’s going to be a reality, the other half of that is if there are people that cannot afford to continue to buy homes, and they have to become renters, they become that side of the coin that we can benefit from as real estate investors because we have more people to rent to. And if there’s more people to rent to, and there’s still a limited supply of homes, then that actually forces the price of rent up simply because somebody can’t go and get a loan to go get a home, they have to rent it, they have to pay a little bit more for rent, they’re going to have to do because they don’t have the downpayment, to be able to go and get a home.
And so that’s a really interesting thing. The other thing that’s interesting, dude, is, is if you look at inflation taking place in terms of the price of a home, and we see the equity increase, whether that’s based on inflation or not, when you see equity increases in the home, whether that’s driven from the effects of inflation or not your interest, if you financed, your interest rate remains the same, locked in for 30 locked in for 30 years. Right? It’s incredible, right?
You haven’t heard a couple things with 40 year mortgages now where the first 10 years are interest only. And then the next election rolls into the same interest rate into the next 30 years is like a typical amortize mortgage. But anyways, not the point of this podcast. Yeah, that’s interesting I did to complete every subject, but gay, also that push on the rental market increases your cash flow, it increases rental prices that we’re charging. Right, right. And that’s a given thing. It’s also increases with inflation. And then like you just brought up the mortgage debt is being paid on only by your tenant, your principal is being paid down. Also the fixed rate debt.
So the only thing that is not increasing is the debt and what you owe. Yeah, I think that’s amazing. In my mind, I’m like, Look, I I’m not ready for retirement next year, I’m not worried about paying everything down and off. I’m young, I’m 34 years old, I’m going to go out and get as much debt as the banks are willing to give me Holy cow. Why not? Right? That’s my mind. Sure. So it’s been pretty fun. Now, let’s do this. What’s next we have on this list. Now, one thing that we do to cohere as a company is we, we analyze portfolios with our clients, at minimum once a year, we’re gonna go through and say, based on what the market is showing us, here’s what we’re gonna do, here’s your equity, here’s your inflation growth, here’s all the things that are happening.
Let’s use some of these tools whether that’s to sell on a 10th grade tax deferred exchange into maybe trading up Yeah, or usually not selling if it’s performing, but we can do a cash out refinance or a HELOC or something to just go do more It’s awesome. Yeah, that is awesome. Okay, so now let’s take a look at another portion of this. I was talking to you as well I didn’t even text you and you’re on your way down to legal then I was like hey man, our houses are right next to each other. I don’t know if they’d show up on a sold comparable list because they’re not exact but they’re pretty pretty similar. Yeah. So yours in my house is just in this last year just owning them here in Utah just living in them just just hanging out living at home for like a year year. They they’ve increased by a Did you say years? It’s been about a between 140 116 Yeah, something like that. But based on the numbers that I’m looking at, right? It’s at least 140 but maybe closer to 169 a year moving in the house.
I know like more finite because I’ve had appraisers in my house recently to just refinance he locks and stuff that I use for investing all the time so like I know it’s been about 135 to 160 that it’s increased in value it’s crazy just gonna use some simple math here but like have you ever looked at this and said wait just that growth that equity How much did that like as an extra side job that I didn’t put any effort towards How much did that pay me per month they’re all how I love the way to this is awesome yeah No Did you mentioned this to me one other time I was like oh my gosh,
I’ve never thought of equity increase that way. Okay, I just stepped on you you’re about to say but I got really excited to get about I know what’s coming. Okay share this with everybody because this is something that people don’t think about. We always talk about real estate we talk about the cash flow, right we did a podcast episode talking about the 1% rule for most people in most properties is dead. But it’s we always talk about cash flow. We know appreciation is a thing, but we don’t generally look at appreciation through the lens that you were about to reveal. And this is awesome. I can’t wait for this kid.
Unknown Speaker 24:49
Think of this for just a second. Not not even really an abstract idea. But just there’s a lot of math is going on here. So check this out. See a typical 40 Hour Work Week. Okay, and typical year of course, 52 weeks, but we’re not gonna Use that because there’s some paid time off or holidays and some some different things like vacation, whatever, let’s say 49 weeks. I think that’s about three weeks off.
I try to take about half the year off and not work at all. But I mean, most people, probably not everyone is has got a life. That’s that’s a good point. Yeah, I work as little as possible all the time.
Yeah, right. Yeah, right. I see those photographs at three o’clock in the morning. Like, dude, go to bed, go to bed. Come on. Okay, so let’s just put 150k and I multiplied 40 hours times 49 weeks, that gives us 1960. Okay, now you do that math 150k divided by those hours, that’s an extra 12.3k $12,300 easy per month in growth. Or if you want to look at it from an hour perspective, it’s about $76 per hour in your house growing in value.
Now, this podcast is not to promote Oh, everyone come to Utah. And now like everyone’s experienced, unless you’re like to the new the new york’s in California, that right? Kind of people are moving from Yes, you’re experiencing this sort of growth, maybe not this rate, but like you’re exploding, you’re still experiencing growth. And even if Adam like here, look, we could do the math right now.
Like, let’s say, you know, I mean, you’ve helped a lot of our clients. And one of the things that we do here and Adams very instrumental in is we do these annual market and property reviews with our clients, right? And we’ll look at what did you buy the home for originally? What’s it may be worth this year? and What didn’t you say it’s a pretty fair, if we’ll take a look at why, like maybe you have a recent example, you could pull up what do you think is an average number of equity increase that some of your clients have seen over the last year? You can just generalize across all the markets?
Oh, my gosh, that that’s a hard question. Because like, if we’re talking like just bell curve, like right in the middle, probably nine to 10%. Okay. Okay, bargains that appreciate heavier than others. Yeah, like probably nine to 10.
Right? So let’s give it a number, let’s say 25 grand is that unrealistic to say 25? grand? Sure, we could do that math real quick, right? Now, it’s good. That means that you made an extra $2,000 a month for doing nothing, right? Right? That your your side hustle, not counting cash flow, not counting anything, you made an extra two grand a month, just in terms of how your net worth got added to. and and you know, look, we know that net worth really doesn’t mean much. The reality is cash flow is king. But here’s the deal when you see it, and I’ve used my parents example, time and time again, when you see a home purchase at a low level and sold at a much higher one, you have to look back and say, Look what actual work was done, right?
If inflation is going to impact the price of real estate, and real estate is going to grow, and it’s going to appreciate and it’s going to have an impact on rents, and it’s going to have an impact on purchase prices. And you can own real estate, you are gaining benefit. What else have you done? If it was just the small amount of $2,000 a month increase? If you just look at equity, right? If if you’re if your property on average, increases $2,000 a month in equity. What else have any of you done in your life where you got to sit on your butt? And make $2,000 a month right? of growth? Right?
Look, there’s some investments. sure there’s some stocks, there’s some stuff like that. But the idea here is with real estate, if you know, inflation is gonna have an impact on real estate, and it’s gonna push prices, and it’s good to push rents, why wouldn’t we have dollars, right? Because even if it is in the stock market, here’s the difference. If you saw an increase of $2,000 a month in your stocks, that’s accounted for on the account balance. It’s not accountable. If you do it in real estate, you’re cashing checks every month, and you’re seeing equity increase, and you’re seeing tax benefits. And you’re literally just owning that hole. I mean, it’s absolutely remarkable.
When you think about that i i completely agree with you. And I know there’s someone out there listening right now thinking open. That’s just equity. That’s not that’s not money in your bank account? Well, I would argue that because look at this, yeah, come talk to us about the investor bag that we have of tools of how you can tap into that equity. Let’s leverage it, we have several things we can do to take that and put it to work. And you know what, we have some of our awesome family, some of our awesome clients in Hawaii, who’ve seen crazy equity increase who’ve worked really hard to pay off their homes, and can now leverage that equity in their home in a really safe way to be able to go and buy real estate in other markets that are far more affordable than on one of the Hawaiian Islands, right?
And so it is not tangible, in theory, right? The way I always put equity is I always think of it like this equity, if all you have is equity, it’s like having a safe in your basement filled with cash. And if you don’t use the equity, it’s like that cash just sits in the safe and you don’t know the combination to the safe. Right? Exactly. But you can crack that safe and you can use some of that money that’s multiplying and growing inside your bank account of bricks it’s just not ever been it looks at it that way. And if we know inflation is going to take place and we know there’s going to be equity increase, then we might as well leverage the fact that it’s existing cuz that’s what you’re talking about. How do we make inflation our partner, we don’t sit and cry and complain about the fact that inflation is happening. We We embrace the fact that it is and we say, How do I use it to my benefit, because I can’t erase inflation, or I’m not going to be able to write, I can’t do anything, I’m not going to go home and burn all my pennies and burn all my paper dollars.
Because what that will do is absolutely nothing in the large scope of how to fix inflation. Sure, we could take a political stance, sure, we could go out there and we could rally against inflation. The reality is, you and I were like little ants on the boot of far more powerful people. So if inflation is going to exist, what you’re saying, Adam, is, let’s just embrace the fact that it’s there, and how do we use aspects of it to become our partner to grow our real estate portfolio and to grow our net worth and to grow our cash flow? And to ultimately benefit from the fact that it’s going to exist? If we can’t control whether or not it’s going to be here? How do we benefit from the fact that it exists, right? Is that is that what we’re saying? Exactly. And honestly, guys, in the name of idle cash and lazy dollars, unless you love that, please give us a call. I’m going to show you how to work that out. Yeah, for sure.
Put it to work and leverage it and use different things of it. Yeah. Holy cow. I don’t like lazy money. So that being said, there’s another thing I was gonna ask you the other day. Yeah. talked about a little bit of, Hey, are you getting people telling us? Oh, prices are crazy right now? Maybe let’s maybe let’s wait till it cools off?
Oh, yeah. I hear that all the time. Right. So so the question we get all the time you guys is Oh, should I wait to buy? Because prices seem really high right now? prices are going crazy. Maybe I shouldn’t buy right. You hear it all the time, too? For sure. For sure. So what would your response be,
I try to be very, very respective to different people, their concerns, their goals, and like what they’re looking to accomplish, because we’re not a big sales organization that’s zero to close us that I tell people about that. But I’m like, Look, if you’re cool with this, let me just show you some different numbers from different ideas and some different thoughts that may or may not occur, because we don’t know what the future holds. And it’s kind of cool. It’s kind of interesting, because you can’t any longer have an economic conversation, and not bring up politics, because so much of their fingers in the race is unfortunate.
But here’s what I’m looking at. Let’s take some of the facts we know today, versus what they could be in the near future if there was a softening or a downturn in the market. Well, I’ve got some numbers here, I’ll give you and of course, these are kind of hypothetical. But let’s look at this. This of course, is assuming 20% down on an investment mortgage. And let’s say that there was let’s look at now, the numbers verse if there was a 15% drop, kind of a cool offer price. Yeah. Okay. So you’re saying if prices cooled off by 15%? What what are we talking about here? That’s what you’re saying. Right?
Exactly. So let’s do that real quick. So I used a couple different calculators I’m very comfortable with and familiar with. I tried to keep the numbers as honest as I could. But let’s see, the calculator I’m comfortable with is the one on my iPhone. Did you use that one? Exactly.
Oh, it was gonna forget to go back. But so about 300. Let’s take a $350,000 house rental today that you pick up for, let’s say about 3%. I’ve seen him for about 333 and a quarter whatever, in different different places. But 3% is a real thing. And the mortgage on that the principal and interest and even the taxes and insurance and the different things not including an HOA but the all that you’re about 1350 on your payment. Okay. Would that interest rate? Well, yes. If you were to look at that house at 300,020%, lower, let’s when things lower, we watched in the Great, great recession, interest rates came up. Yeah, they go up pretty quickly, right?
Actually, well, if I’m going to lend you money, it’s gonna be the higher end. Yeah, right. That happened because they think it’s more risky to assume if they’ll even lend you the money, right? Because they don’t know where they don’t know when that’s gonna happen. So let’s assume not a crazy amount higher. But let’s say 5%. Just two points higher than 3% 300,005% is 1450. So your deal, you think you just got a 20% of the prices today? Today, it’s 1350. And then the cooled off? It’s 1450. It’s more expensive.
Our cash flow? Adam, I have never considered it like that. Because I have that conversation with people all the time, right? And the question is always, well, should I acquire now what if there’s going to be a crash? Here’s my response to use, right? It’s that look, you don’t want to miss out on potential equity gain. But even if there is equity gained, and there is some sort of a correction, the reality is the great equalizer we talked about on this podcast, the great equalizer is rent. And if you are renting with a positive cash flow, you’ve got a little margin of safety, right? If prices decline, rents don’t decline immediately when prices decline.
So maybe when you have to release the property in the future, you may have to lower the rent. But if you’re cash flowing three or $400 a month, then you’ve got a margin of safety to where you probably will still be cashflow positive. And maybe you’ll be at a breakeven. That’s usually what I say. But what you just said was genius. What you just said is Look, if that why would you buy today, because if there’s a softening of the market, if prices go down, generally interest rates will come up. We see that happen, right? We really do.
Now when because if you look at what happened during COVID, interest rates came down, but property values did not come down. Right, right. So but you’re right with property values come down. We absolutely saw that interest rates are rising. So if we think and we know that the Fed is not going to keep interest rates this low forever So if we think of it like that, if the price of a property decreases, but interest rates come up, you’re still better off to buy a higher price property today, with lower interest rates, then you are a lower price property with higher interest rates, right? That’s awesome. Exactly. That’s a great way to think of it just in case there’s anyone out there thinking, Oh, if it does correct, I’m not gonna do any real estate than just because it’s more expensive, then no, listen, the proof is in the pudding. We as a company, we began in 2007.
We we wrote it to the top of the market had more success as it dropped down to two those were investors, you guys, we know how to do deals, we just switch up our strategy, and we do what we always bind deal. That’s a fear. What about the market? That’s a key, there’s always a right strategy. It just depends on what’s happening in the market. Right?
Exactly. And we buy for cash flow, so you can withstand certain things. That’s right to the point. So really, I think it’s I don’t know if we are going to get close to the end here. But yeah, just sum up this entire thing that we’ve talked about. And I’ve packed this statement with a lot of that we can have a podcast on this, here, but listen to this. I’m gonna read it slow, then we can look at it for a minute. So three different steps. Okay. First, by appreciating assets that cash flow with leveraged, devaluing dollars, parentheses on a 30 year fixed rate no at today’s awesome interest rates, okay, and parentheses. Number two, have someone else pay your monthly payment, which also pays down your mortgage. Okay. Now, number three, I want you to write the fed a letter that says thank you for partnering me with me on your bad inflation habits kisses love you goodbye. Yeah.
That is awesome. Okay, everybody, let’s do it. Let’s shoot an email, write a note to the Fed to say thank you for allowing your bad monetary policy to partner with my exceptional real estate empire that I’m building to replace my income one property at a time. Adam, this was awesome, man. tons of cool perspective, tons of cool different ways to look at what’s happening right now guys, in summary, here’s the deal, we’re not going to fix inflation, we don’t know if it’s going to go anywhere, it’s probably going to be around. So if we can partner with inflation, if we can view it through a different set of lenses, if we can look at it through a set of lens that says that I can use this to my benefit.
And if we take the three points that Adam just shared right there at the end, which were awesome that we first by appreciating assets that cash flow with leverage devaluing dollars that we number to have someone else, pay our monthly payment and pay down our mortgage. And then number three, we’re all gonna write a letter to the Fed and say, Thanks for your bad monetary policy, and for partnering with my real estate. This has been awesome, Adam, what a great way to look at things. What a great perspective. Thanks for all you do, guys, if you’re listening, I hope this was beneficial.
I hope that you share this with somebody in the only way that we stay ahead of the curve, regardless of what’s happening in the market is when we view what’s happening through the right set of lenses, because that informs decisions, we make better decisions when we view the world through a set of lenses that serves what we’re trying to do, and stop complaining about the things that are happening around us. Any last thoughts?
Just one last little perspective shift that’s really important for you to have. If any of you guys ever see Kevin or myself like on picture video or in person, even though we look Goofy, I just want to have this perspective shift of No, we’re actually really good looking. Yeah, we’re cool. Yes, roll with it. Okay.
That’s right. Love you guys. Good to this video.
Thanks so much, Adam. And we appreciate you and that’s a good last thought to end on. We will leave it there. Thanks, everybody. appreciate you tuning in. And we’ll talk to you real soon. Thanks so much for listening to replace your income with Kevin and Steve. Do you have a question you want us to answer on the show? Head over to Apple podcasts and do three simple things. Leave us a rating and review and tell us what you think of the podcast. Then in that review. Ask Us Anything you want related to real estate or income replacement. Then sit back and get ready to have your mind blown. And if you want a shout out, leave your Instagram handle Lord your name. And that’s all. Then listen in to hear your question answered live unfiltered and uncut. Thanks for joining us on replace your income. And just remember, income replacement for you and your family may only be one property away. See you next week.
