SOTM 52: Mortgage Rates Dip Below 3 Percent: Now Is the Time to Invest in Real Estate

Aaron: Real Estate Rockstars, this is Aaron Amuchastegui. Hey, today we have something really exciting. We’re actually doing a joint podcast recording with my good friend, Jeff Cohn. Jeff runs the Team Building Podcast. I love to tell people Real Estate Rockstars is the best podcast out there for real estate agents, but Jeff may argue with me on that a little bit. Jeff is one of my favorite real estate agents out there, we go way back and I asked him to come on and do the dual State of the Market with me today. You might be listening to this on your Real Estate Rockstars download, you might be listening to it on your Team Building Podcasts download, we’re two guys that love real estate. Jeff, how’s it going?

Jeff Cohn: It’s awesome. Aaron, I’m super excited to be here, man. I appreciate it. What I would say is I started listening to Real Estate Rockstars so long ago when I discovered the difference between you and me were the podcasts we listened to, the books that we read, and the people we spent time with. Aaron and I have a fun story, which we’ll save here in a couple of minutes from now, so stick around to hear how Aaron and I met the very first time on his farm in California.

What I would say is Real Estate Rockstars is going to teach you to be the best real estate agent in your marketplace. It’s going to teach you how to serve your clients at the highest level. Then of course, I know we’re talking about investing now, which I’d like to talk about that a little bit today when we talk about the State of the Market. The Team Building Podcast is just that, it’s going to teach you to stop selling real estate. It’s going to teach you how to focus on building a business, entrepreneurial venture beyond just real estate and getting into mortgage title insurance and all the other ancillaries that we believe will run parallel and continue to help the agent be profitable.

Aaron: That is such a great thing to be transitioning into too because lately, we have had so many people on here that I’ve been saying, Hey, our mission is to help real estate agents succeed, but some of that long-term success becomes, can you also invest? The commission you make every month is great, but people have learned during COVID and shutdowns that tomorrow’s income isn’t necessarily guaranteed no matter what type of business that you’ve built, and so some of that other stuff that you’ve talked about will really help diversify it. You’re up in Omaha, right? So Omaha, Nebraska.

Jeff: Yes. Omaha, Nebraska is our market center, and my investment team and several of our other operations.

Aaron: Yes. Even a couple of months ago, I got to see on the big stage at the KW family reunion event in front of– I don’t know how many tens of thousands of people in there as you were just switching. You’re also one of the smartest guys ever because when quarantine started, you were out in Hawaii and I think you just said, Hey, I’m just going to stay here an extra couple of months to see if I can wait out– [crosstalk]

Jeff: Yes, we went for a week. We were going to go to Disneyland or Disney World, actually in Florida and everything got shut down mid-March. I said to my wife, “Where would be the best place in the world to be stuck for a couple of months?” We joked, “Hawaii.” We booked one-way tickets. Normally, they’re about 600 a person, we got them for 200 a person. We got there before COVID hit, so nothing had been shut down yet. You didn’t have to quarantine yet.

Once the quarantine order went into play, we were already there and I was able to negotiate a luxury house that was normally a thousand a night, had a pool, hot tub, six rooms, on the beach, we are able to get it for $200 a night and we decided to extend the trip another four weeks. We were actually six weeks in Hawaii. The entire time Nebraska was closed, we were in Hawaii, so that was pretty awesome.

Aaron: Getting there before the shutdown because I hear the Airbnb is getting crushed out there.

Jeff: They got shut down. While we were there, an order came in from the governor that all Airbnbs or any rentals for that matter were not allowed to rent for a certain duration of time. I think it opened up and then I think it’s closed again. It’s just been for anywhere, this isn’t just Hawaii, it’s just anywhere that’s tourist. I know Florida and California as of a couple of days ago, just closed again.

Depending on when you’re listening to this episode, [crosstalk] we’ll see this a lot, I think, across the country. When we get into State of the Market, I don’t think we know yet where it’s going to be as this ebbs and flows, but what I’m guessing and I’ve speculated from the beginning is once the next president has been defined, I think that the writing goes away, I think that COVID goes away, and I think the world gets back to a new normal. I don’t think that we’ll hear as much talk about pandemics and riots.

Aaron: Yes. I saw that yesterday with somebody said that Japan just said their state of emergency is over, and the biggest headlines underneath, there was like, “I guess it’s not an election year in Japan right now.” That does add to everything. The election years makes everybody more stressed anyway. Throw this on the top, we are in this crazy pressure cooker of a world. What about Nebraska? I’ve been telling the listeners about, I’m in California in Austin and we’re like, shut down to not now, we’re shut down, what’s it like out in Nebraska?

Jeff: I can speak to Nebraska as well as we have hundreds of coaching clients all over the US, and for the last six months, once a month in one of our high-level calls, we’ll ask everyone to report on the state of their state. How are they going? Is real estate still essential or clients still going out? I will speak to Nebraska first and I’ll say, We’ve never even been deemed the essential, we just have been allowed to show and sell and list typically, anything in the financial world has stayed open.

Entertainment got closed for about two and a half months. Restaurants, of course, delivery only or take out only. Right now, everything’s been open. I wouldn’t say back to normal, you’ll see a lot of people wearing masks. Walmart just changed their ruling on masks, I think that was nationwide. You have to have a mask on in Walmart, you have to have a mask on in Costco.

Then it’s the each their own in terms of the requirements for masks. My office came back online soon after I returned from Hawaii, when the rule went from 10 people per location to a hundred people, which is what it’s at, I believe right now in Nebraska. You’re allowed to have gatherings up to 99 people, something like that. My office doesn’t usually have over a hundred people at a time. I would say from a real estate standpoint, it’s been the hottest market we’ve ever seen.

I predicted while in Hawaii, on probably over 30 webinars interviews and on my podcasts that we would see a third-quarter in Nebraska that would perform a second quarter, and we’d see a fourth quarter that performed like a third. I predicted that the pandemic and everything closing would only last about two to three months and then things would have to come back online.

Exactly, what I predicted is what’s happened. People are reporting record months, agents are reporting record months. People that were worried and wondering what’s going to happen, I think in Nebraska, have the comfort now that things are getting back to normal. It’s not the doom and gloom that the media might have you subscribe to, and rates are still at an all-time low.

We’re seeing more homes moving. I got two sides on, a $1.8 million listing a couple of weeks ago. I’ve had several showings on a $3 million listing, which is really high for Omaha, it might be the only house over trjee million on–

Jeff: We’re seeing every price point move, but the thing I found surprising, Aaron, and now I’ll get into our segue of when I came out and visited you. Clint Bartlett, who’s the operator that runs our investment company, Dynamic Properties that buys about a hundred homes a year, single-family, primarily, we wanted to learn how to be the best and we had heard all the success that Aaron was having in investing and wanted to pick his brain.

I have this pattern of instead of just calling someone and having a 30-minute phone call, I just call and ask if I can visit their house. Aaron’s like, “Dude, I live on a ranch in the middle of nowhere, California.” We’re like, “That’s cool.” Every time we go somewhere, we find the top three or four people to meet with. I think you were in Modesto or the Modesto

Aaron: This is the Sacramento area.

Jeff: Okay. We ended up visiting the trip. Daniel Ramsey, the owner of-

Aaron: MyOutDesk.

Jeff: MyOutDesk, thank you, sir. Aaron and Matt Aitchison. It made for a pretty dang good trip. I had met all of these gentlemen in a organization that I was in for several years called GoBundance. That’s how I had the foot in the door, but no one really knows each other until you spend a couple of days together. Aaron had the coolest property, huge pond, he had a beehive with real honey and chickens and all sorts of stuff. I’ll say publicly to anyone listening, I think that was really cool that you hosted us, but I will say that one of the patterns that I’ve seen amongst high-producing individuals is that they have an abundant mindset.

While they’re happy to get on a 30-minute call, they’re also happy to open their home to you. He literally opened his doors. We entered his house. He didn’t know we were. We sat in his office and we had a five-hour conversation that day. Then we went out and that’s how our relationships are made. We’ve done that. I’ve done that personally and I know Aaron has as well, hundreds of times across the country, across the world. Anything you want to become great at, just pick the person you want to be like when you grow up and go spend time with them.

Aaron: Then we all got to go boating afterward. You chose some great people to come hang out with. Jeff’s point there for all of you, listeners, is really, really good. We have an abundant mindset. We are doing these podcasts because we love meeting people. We love sharing ideas and we want everybody to be hugely successful. He said, “Hey, how do we flip houses?” When I first started getting into businesses, I was scared to tell people my secrets.

Then somewhere along the line, you learn that the more you give, the more that there’s a balance and you will be amazed. If there’s somebody in your market that you want to meet or there’s somebody out there that’s the best at what they are, pick up the phone and call them and say, “Hey, can I come shadow you for a little bit?” Whether it’s somebody who listened to on Jeff’s podcast or my podcast or anything else, you’d be amazed at how many people say yes.

Jeff: Listen to this, Aaron. When COVID hit, we opened up all of our brokerage training for free to every agent in Omaha. All of the agents in Omaha, Nebraska, across all brokerage flags can attend all of our brokerages’ trainings online. They never have to enter the office. I don’t even need to know who the person is, but I’ll give them a link so they can actually watch all of our trainings for free. Show me a brokerage that’s ever done that. We also open up our office for free. I also talk on my podcast, just like you would about every strategy for free.

The reason why, it takes me back to a story where my dad and I decided to plant three trees in one of the homes I grew up in when I was in fifth grade. Instead of hiring the company to come with a big digger that pulls a big hole out of the ground, we decided to dig these things by hand. I don’t know the rules, someone’s going to call me out, but I remember at the time I had to be five feet deep and four feet wide. That’s the brain of a fifth-grader. I don’t remember in actuality, but I remember in a fifth-grader mind thinking it took us 12 hours to dig the hole.

What I have found is to get to the level you’re at and to get to the level I am at, it takes that much time, effort, dedication and consistency over long periods of time to be successful. If I go download for someone all the things that we’ve done to become what we are today and share with them the direction that we’re going, most people would say, “No, thank you, digging holes isn’t for me.” What I would say to you is, “Thank you. Leave us. Give us the space to go do what we do.” I know less than 1% of people will ever do it and I would love for everyone listening right now to prove me wrong. That’s been what I’ve seen. I’d say it’s one out of 1,000 people that ever truly go and do it at a high level.

Aaron: Yes. Our foreclosure book on How to Buy Foreclosures just started pre-selling on BiggerPockets. People are like, “Did you put everything?” I put all of my secrets in there because there’s two of those things that happened. One, I hope everybody puts me out of business. I hope that 10,000 people become amazingly successful at doing it. Then, two, it’s also realizing that not everybody will do the hard work. Let’s have an abundant mindset. Let’s teach everybody our secrets. If you guys hear a secret or something, as we jump into our news, Jeff already talked about it, hottest real estate market, anywhere all over the US we have heard everybody is booming.

One of the articles in this week, we’ve been talking about mortgage rates for weeks. Mortgage application surge as buyers scramble for rates now below 3%. Purchase activity are up year over year. How much of an impact do you feel mortgage rates are having on it? Do you think it’s just people needing to upsize because they live in their house too much now or do you think mortgage rates are having a huge impact?

Jeff: I think a lot of the news saying mortgage rates are at an all-time low, anyone that’s looking at buying, we never talk about becoming a pre-approved. The dialogue we train on is finding out what your buying power is. It’s more of an empowering conversation about what they’re able to purchase. Anyone watching right now, if you ever dreamed of having, let’s say, a million-dollar ranch with bees and chickens and you live in a $200,000 property today, look at the difference of what your jumbo loan would cost you at 3%, which I think can get a jumble right now at 2.75% fixed for 30 years. Look at a million dollars at 2.75% versus a million dollars at 7%, which is what rates were when I bought my first house in 2007.

You can literally afford two and a half times as much house today than you could just 10 years ago when I bought my first home. That changes everything because when people start talking about your market being a seller market, and people are paying too much, and there’s multiple offers. Rates are under 3%, who cares? All that matters is you lock the property down. Your rates are under 3% you guys. Our parents in the late ’80s were in the upper 19%, 20% range on interest rates.

Aaron: It is like free money. Inflation itself will be more than that. If you really start digging into it, the payment that you’re making with the dollar 10 years from now, every $1,000 payment you make 10 years from now is like $700 in today’s money. It keeps getting better and better as you get to see that. I bet on agents too, I think there’s an analysis you can do in your market and say like, “Hey, if you bought a $400,000 house five years ago, that means you could afford an $800,000 house today, same payment.” It’s exactly what he says.

Jeff: Figure out your algorithm and tell people that on social. The challenge is finding stuff, man. This is not Nebraska. We’re insulated a little bit by some of the challenges that are being faced with COVID, but that’s in the major cities. The problem with the news, if you watch on average, start writing down the names of the cities they’ve coverage on. It’s five cities. Well, guess what? A majority of America doesn’t live in those five cities. Let’s talk about the places people live.

When you look at the Midwest, you look at the South, there’re certain regions that have not been as impacted, and those regions are on fire right now. The challenge is in inventory. People can’t find houses. They have the money. They have their buying power. They know what they want, but they’re not able to successfully find a house. That’s where construction comes into play. It was interesting in the recruiting process when Gary Keller was trying to bring this over to Keller Williams last year, we talked about some of the challenges that we were going to see over the next 10 years. I think this ties in nicely to our topic today.

Gary’s belief is that the property management industry is going to see a huge boom due to inflation. People are going to find that just by renting their house out, they’d make way more money than in staying in their homes. They’ll go and live with friends or live with family or buy a smaller house and they’ll rent their house out Airbnb or hire a property management company to do it. That’s going to be booming.

New construction, they can’t build fast enough across the country. You cannot build for the demand that’s out there. The rental market’s going to explode. What I think is going to happen. Going to the investment conversation, I think we’re going to see investment property double, triple, quadruple, and even is it quintuple?

Aaron: Yes.

Jeff: What’s five? I think we’ll see that in our lifetime, Aaron. When people look back and they have regrets, and I know there’s a great book, The Top Five Regrets of the Dying, when it comes to business, everyone listening right now that’s part of real estate transactions either investing or representing others that are buying or selling real estate, your regret will be that you didn’t own more rental properties. The thing that’s so fascinating with this is when I chose to get my license, we got licensed in 2006, I had a pattern in my life. Whenever I wanted to be like someone, I just interviewed people that were what I wanted to become.

I interviewed the top 10 agents in Omaha. 2006, I’m 22 years old, newly married, ready to take on the world. I would say 99% of the people I talked to when I said, “If you could be me, what would you have done differently?” I wanted advice like door knocks, start a referral group, make prospecting calls. I wanted to know how to sell real estate and make a commission. No one taught me how to sell real estate and make a commission. Everyone said, invest in rentals. I wish I had owned more rentals because our parents’ generation saw homes starting in the ’80s, double in value every seven to 10 years, and then double again and then double again.

We haven’t gotten to experience that now. I think just now it’s starting to go again, but I think there’s going to be a correction caused both by inflation. There will be inflation and value and I think we’ll see homes that were today, and we’ve seen this in some cities, but homes today that were 200 go to 400, 400 go to 800 and it’ll be impossible to own. At that point, you’re going to have to rent and you’re going to have to make your one or, in Omaha we make a 2% of the value per month in rent. That’s our equation for Clinton and I buying about a hundred–

Aaron: Make 2% per month out. Now, I should buy some Omaha [crosstalk]

Jeff: Everyone forget what I said. 4.5%, there’s rent control, it’s a complete nightmare.

Aaron: What’s the zip code you’re complaining on Jeff? I think you’re right.

Everyone’s regret will be not– From 2009 to 2012, I flipped 1,000 houses. I lost a bunch of money in 2013. My biggest regret at that point was, “Wow, why didn’t I buy more rentals when my business was crushing it?” Now, I own hundreds of rentals. I started buying them in 2015 and I still wish I had more especially as we go in. That has been the ultimate thing for me during quarantine. I usually buy vacant, abandoned, foreclosures on the courthouse steps that has been on moratorium since it started. It just hasn’t happened. There’s been very few things selling at all, and so that part of my business has been completely shut down, but my rentals, people are paying rent.

Jeff: Let’s talk about this. When I get on these podcasts, as we talked about before we jumped on, neither of us are getting paid. We do this to create massive value and influence for others so that you can apply these things we almost most want. This is a part that I love, having a back and forth with. That is, when you talk to investors across the country, when I listen to podcasts, when I’ve been part of several large investment mastermind groups that meet nationally, everyone talks about flipping. Flipping is semantically is what people talk about when they talk about investing.

A delineation I’d like to draw is that flipping generates revenue that Uncle Sam gets to charge you, your 42% tax rate on. Flipping is not something that happens when you sleep. Somebody has to actively be operating a flipping business. What I would challenge everyone to think of to your very point, Aaron, is start taking one-fifth of your flips or one-fifth of the revenue generated off your flips to buy single-family or multifamily or storage units, something that creates residual revenue because that’s your retirement money. That’s what everybody should be working towards.

What I loved about GoBundance, which was the organization I referenced earlier that Aaron and I were both in I don’t know if Aaron still is or not. The thing that they talked about is becoming 100 percenter. What 100 percenter meant in the GoBundance organization was that you’d be able to cover 100% of your life expenses to continually maintain your lifestyle. You stay at your CrossFit box, you own your boat, you go on seven trips a year, you have a nice house, all the things you need. Let’s say that numbers $200,000 a year, if you can generate 200,000 a year without working, that’s money coming in off your investments, including rental properties, you can do that, you’re 100 percenter.

I don’t hear people talk about it, Aaron. I rarely hear millionaires talk about this. Why are we working to work? Go back to the book, The Top Five Regrets of the Dying, no one looks back and says I wished I’d worked more.

Jeff: People say I wish I’d taken a trip to Alaska. I wish I’d spent six weeks in Hawaii, I wish I had done that little boutique store that sold furniture, whatever the case might be. We’re here to live and live the life of our dreams. Investing is a great vehicle to be able to do it. I would share with your audience and mine. If you’re looking for where to invest your money, everybody has the messaging out there. Learn how to buy single-family, multifamily or storage units. That’s where the money is going to be over the next 30 years. That’s what’s going to help you become a millionaire. If you look at anyone that’s become a millionaire, typically real estate is a big part of their portfolio.

Aaron: One of the things that Jeff said I have a lot of people ask me, should I be flipping or should I be renting and I talk to them that the way we were able to build up is, one out of every five flips or one out of every five houses we bought, we would do a flip to make some quick cash and use that to be our down payment to finance the other four that we bought. As agents too, if you’re not flipping houses yet another way you can turn that if you’re making five or six commissions a month you can go all right of my five or six commissions, one of them is going to go towards buying another investment property or one of them is going to go into this account, to be able to buy those investment properties.

Come up with some long-term goals. All of you agents listening, you’re operating at a really, really high level, but just remembering that commission is you work for it every month, and you guys work hard for your commission every month. You guys are earning every dollar out there. Just make sure that you put some to the side and why not it be in real estate where you guys are experts anyway?

Jeff: That’s the whole idea. Millionaire Real Estate Agent, I read that 10 years before joining Keller Williams, but it’s a book written by Gary Keller in 2005. It talks all about getting to the seventh level and seventh level in Gary’s peak, is making a million dollars a year working less than five hours a week on your business. Who listening right now would want to make a million dollars a year working less than five hours? Most people laugh and that’s not a possibility. For those that take it that way, it is not a possibility for you. Aaron and I can confirm we have lots of friends that make over a million dollars a year $10X million a year and they literally don’t have to work if they don’t want to.

My war cry, back when I launched my team and chose to get out of the business to focus on the business was to teach real estate agents and I’d say the same thing for investors to stop working a job. Flipping homes is a job. It’s a function that has to happen every single day. What’s the end game to become 100 percenter? What are you investing in that creates residual wealth? It can be ancillary businesses. We own a mortgage company, a title company, an insurance company, a digital marketing company, a call center in the Philippines, and a myriad of other businesses that run parallel to real estate. All of those for me are residual because I’m not the operator of any of those businesses.

I teach those that I partner with to not be the operator either. Eventually, true leaders serve their followers by teaching them to be just like them. Eventually they will teach their followers to be just like them and on goes that equation. What I would want for all of our listeners is to put themselves in a position where you could choose to go spend six weeks in Hawaii, and your business grows while you’re away. You have the choice to not go show that house this weekend, you have the choice to tell that seller to go pound sand when they’re being disrespectful to you and your family’s time.

That’s all I want for everyone is to be empowered to not have to necessarily work in a job, but be able to work on a business. There’s something so invigorating, something so powerful about knowing that every hour you put in is giving you the ability to have more hours to do the things you love.

Aaron: Sometimes we have to do the hard stuff. We have to the hard parts in our business that we don’t like but I think that long term goal would be to get yourself into a position where you don’t have to or you don’t have to do it as often or it doesn’t have to be if you don’t like knocking on doors, but it’s the only way you’re getting deals, hopefully, you get yourself set up in a position where that’s not the only way after that. Before I go into the next article, you’re talking about all these ancillary businesses that you have.

If an agent is listening, and now they’re hitting these different volume levels, and they’re selling five houses a month, what do you think their first ancillary business that they should consider is?

Jeff: Investing.

Aaron: Investing.

Jeff: If you’re an agent, you should be building an investment team because the pieces for an investment team are very similar to the pieces for a traditional real estate team and they complement one another. When you go on an appointment as an agent, you should literally wear and I have multiple hats here, you should wear two hats.

You show up as a traditional agent, hey, I’m here to listen to market value, but oh my gosh, your grandma’s a hoarder, the house is a pile, it’s leaking all over the place, you probably don’t want to put this on the market, because you’re going to need 30 grand just to take it to the MLS. Why don’t we partner up with my investment company here in town, and we’ll make you an investment offer, which typically will be 20% to 30% below market value, but it’s going to be a lot less hassle for you.

As an agent, that’s the conversation you can always have. Then as an investor, if you’re an investor listening and you don’t have the traditional arm, stop giving deals to your acquisition manager without charging referral fee, stop charging a referral fee period, just have an agent that works for an investment company that can take all your traditional real estate transactions and just pay them a salary.

All these leads you’re generating I think Gary Boomershine, who’s the owner of realestateinvestors.com they generate over a million leads a month with mailers all across the country. He said 70% of opportunities that come in are traditional opportunities. 70% of the appointments they’re going on are traditional, don’t lose those deals, build a residential arm that runs parallel. Number two would be mortgage. Mortgage is very hard to create and has lots of legal surrounding mortgage.

I think one of the easier ones is insurance. The way you can structure insurance is literally you can partner with a private independent insurance agency in your state. If you’ve been sending them deals over the last 10 years there’s an algorithm, go online, do some research, but you’ve made them hundreds of thousands of dollars, they just haven’t told you.

You go to them and say hey, I’ve been your marketing arm essentially for the last five to 10 years I’ve given you hundreds of leads. I’d like X percent of your business if I’m going to continue giving you leads. They’re inevitably going to tell you I’m not interested Aaron, go pound sand. You say okay, no worries there’s 1000 other independent insurance companies in our city that I can partner with.

I’ve been able to structure these deals. I did not build companies from the ground up. It would, limited liability companies, they work from the ground up but the people I partnered with already were working in this space. I had already proven myself to them that I could bring them business and then I just simply, they negotiated a percentage of ownership in their business and my value add was the leads that I’d be able to bring them to.

Aaron: That is some great advice as some quick things again to– What you said about, the investment arm being so related to being an agent and what’s really cool about adding that ancillary business. It also makes you a better agent. If you get to show up as an agent and say, I’ll buy this from you for a 100,000 or I’ll list it for you for 130,000, you are helping your client too. I’m giving you-

Jeff: You’re now in the lowest.

Aaron: Yes, give you two options. I’ll let you get done right now or we’ll do it this and there’s all sorts of versions there.

Jeff: The whole guaranteed sales program which is a scam, essentially tells a seller you’re guaranteeing you’ll buy it if it doesn’t sell in a certain amount of time, the price you’re buying it at is a ridiculously low price, which is the same price you’re going to offer day one. You essentially have a guaranteed sales program and what a unique position to put yourself in and the seller to say, Hey, if you decide in three months you want to just have a fire sale and get rid of it. I’ll buy it at X, but let’s take it to market Y and let’s see what the market tells us.

Aaron: I love those those deals. When we’re trying to tell people where to invest, one of these articles that just came out in Bloomberg, day before yesterday, it says New York, LA, nightlife lockdowns sending renters to the suburbs. I’ve been talking about this a lot lately is that I think that their demand for rents in downtown areas will go down. A lot of people say, hey, they’ll eventually come back, downtown New York City came back after 9/11. What do you think? If someone’s going to invest it in rentals, you think right now it’s the suburbs it’s near the big city?

Jeff: Robert Kiyosaki,, I think you were at that event. He came and spoke to GoBundance a couple of years ago and Kiyosaki gave great advice and I will pair it and if you haven’t read his book, Rich Dad, Poor Dad, it’s a great one. Robert said that you want to invest in real estate, commercial, single family, multifamily, that’s close to government buildings, hospitals, and schools. Because when there’s an event like a pandemic that you never think is going to happen, those will be the entities that will continue to exist.

Those people, doctors, nurses, teachers and now there are teachers virtual, so that’s an interesting one, hospitals primarily, those aren’t going anywhere. Those are going to always stand. I think those are good investments. I’ve never been a big city person, Omaha, we do have a downtown, but my investments are all in areas that get the highest ratings for schools.

I track school rating. Whatever schools are the best, I try to buy properties in those areas because that’s typically your more affluent families and homes that are appreciating and value, or typically in areas where the school ratings are the best. It’s the way that we’ve tracked it. Another strategy we implement is we look at what the growth has been over the last 15 years for every property we hold and we assume that if it grew X over 15 years, over the next 15, it’ll grow Y.

Slumlord mentality are our investors that are buying and depreciating areas which typically you can cash flow really well on those deals, but you’re not going to grow a legacy wealth with those deals and so we pass on all slumlord property. Someone wants told me $300 a month rent brings you $300 a month problems.

Jeff: Yes. 1000 we try to stay away from it. We want at least a minimum 1000 month rent.

Aaron: I have some properties like that that are really low rent and there is amazing because if you have somebody paying four or $500 a month and you have to evict them, it costs you the same $4,000 or $5,000 to fix the house up as it does if you’re renting for 2000 a month. Or you have an HPAC system go out on a $500 a month, house it costs you 5,000 or 10,000 to fix it so you lose six months of rent or a year of rent.

That article that talked about people leaving, it says from real page that their rent collection in urban centers fell in June while in the suburbs, the revenue jumps twice as much. It’s the biggest gap they’d ever seen now, it talked about nightlife being the reason, but I figure there’s also something about, you’ve seen all the articles with Twitter saying everybody can work at home now. Facebook says, everybody works from home now. It’s permanent things.

In Austin, Texas. There’s all these businesses that are saying work from home now.

Jeff: Aaron, your movie theater is at your home now, your gym is that your home now, your yoga studio is that your home now, your swimming pool, your trampoline, all these things that we used to have to go somewhere else to do because of COVID, we’ve been forced to spend that money on making our homes better or buying new homes and I think we’re going to see huge backlash. That’s why I called it the new norm. We’ll never go back to what it was before people have now been conditioned to feel comfortable. They’ve created habits because over 90 days has passed and it’s never going to be the same.

I suspect that the traditional commercial space that houses offices is going to struggle. I think downtown landscapes are going to struggle because those commercial buildings are going to go away. The restaurants and the support for those existing commercial buildings isn’t going to be there and it’s all going to be the demise. The question now becomes, what can you place in those commercial spaces that offices are leaving that could be lucrative and maybe we’re going to convert those commercial buildings into multi? That’s my guess, is what we’ll see happen.

Aaron: Solve that. What will you do with that commercial stuff? This month in Texas, in the foreclosure postings, we have more retail centers posted for foreclosure than we’ve ever seen before. Even considering the fact that our number of posting statewide is down like 30%. There’s something like 1400 total in Texas posted for foreclosure for August. Usually that’s a $5,000, $6,000, $7,000 a month, I think.

Jeff: My thing. I won’t get on my political stage for a minute, Aaron, but I want to make a comment about it. All these businesses have closed because the US government chose to shut down their companies. We all live in that country. I’m just going to put that out there for everyone to listen to this one more time. All of those businesses are filing for closure because the US government chose to shut down their companies because of COVID. Not give people the option in a capitalistic society, but forced people to close down their business.

Aaron: That has been the one of the biggest eye-openers of really, really successful businesses getting crushed. Instead of saying, hey, people aren’t responsible have to make their own decisions, so they were going to do that. Wherever you guys fall politically, which we have to saying is true. If it wasn’t for shutdowns many of these businesses would still be in business. These retail centers that are getting shut down, highest number of retail centers we’ve ever seen posted for foreclosure in August even though it’s a third of our normal posting count.

Jeff: The sad thing and from a political standpoint, I’m not on either side. I’m anti-government in a lot of ways and the thing that is saddens me is a lot of very mid-sized businesses that don’t make it to the news are the ones that are getting crushed right now and no one talks about them. Those are also the entities that don’t get bailed out and people will say, what about the PPP loans and all these other special loans? Those loans were designed to cover the cost of labor. If anyone understands anything about business, on your P&L your labor is only 10%, who’s covering the other 90%? Who’s covering overhead expenses? Who’s covering real estate?

I think one of the articles you had shared with me prior to this was talking about all of the leases that would be getting broken. People weren’t paying their leases because literally the news said, you don’t have to pay your lease. Well, guess what? Guys like Aaron and I are the ones that own the properties that the government just gave permission to these people to not pay the lease. How are we going to pay? We have to pay that’s the way it works. Somebody is on the hook and if we don’t pay, then the loan servicers have to pay in it, they don’t pay. It’s American government that’s backing all of this and who has the most to gain and who has the most to lose. It’s just a scary, scary situation.

Back to the house thing, if you haven’t tracked this all the way up to this point and the importance of owning, it’s not only owning, but it’s how you own the property. If you had one house just to break the numbers down, Aaron, correct me if I get any of this wrong, but we pick up a door right now, let’s say a $100,000 in Omaha. We’ll pick it up for $65,000 and we might put 5,000 into it. Now we’re 70 in on a property that appraises at a 100, we will cashflow on average 300 to $500 a month and that’s on a 20 year note and rates are crazy low right now we’re under 5% on a 20 year note that adjusts it’s an amortized loan every five years. It readjusts based on prime.

Our goal over the course of 20 years is for that property to be paid off. Well that a $100,000 a door in Omaha today rents at a 1000 a month in 20 years, it’ll be renting at 2000 a month because we assume it will double in value. Imagine if you just bought one property today and you paid full price, because a lot of institutional investors will pay full price for multi-site today we’ll even see over full price.

Anyone listening that hasn’t bought a house that you buy it at market, as long as you can cash flow which just means that you’re able to make more per month than what you’re spending on your principal, mortgage, insurance and taxes, and then any other vacancy costs and any other unexpected expenses. If you’re cash flowing and somebody else is going to pay this note off for you in 20 years from now, you could literally have a paid off property that’s making you $2,000 a month.

This is one house. $2,000 a month coming in you just have a property management company, you pay 5% a month of whatever the rent is and that’s just one occurrence. Now take that by 10 and now take that by 10. That’s where Clint and I are right now at a $100 and you’d said you’re in the hundreds.

Our goal is to be in the thousands, but if you want to grow wealth really, really fast, it’s figuring out how to do that as soon as possible before inflation hits. You can do something really special with 10 homes. Who wouldn’t want 20 grand a month? If you own 10 homes today, over 20 years, they get paid off by somebody else, you’d be bringing in $20,000 a month on 10 houses paid off at a hundred grand house.

Aaron: Your legacy is set at that point, it’s planting a tree. I’ll have some people that they go through it with me and they say, “Wait, the cashflow is only 300 a month, how do we ever make money at this? when Jeff was saying, cashflow is at 300, he’s saying, rent is a 1000, mortgage is 500, insurance is a 100 and property management is a 100. It’s not that he’s only renting it for a few hundred, but he’s saying that actual take home is 300 and I’ve had doctors and people that are investing say, well, that’s not enough or that’s not much, but what Jeff said there, it multiplies.

When your loan is paid off, it desperately multiplies. Every year you get to raise rent, while you get to charge more and rent every year, while your mortgage payment essentially goes down because of inflation, stays the same. It’s just your dollar–

Jeff: Dude, the air in the mic drop, sorry to cut off again, the mic drop that a lot of people don’t recognize in the BRRRR strategy is buy, renovate, rent, refinance, repeat. The refinance piece is where things get very special. So let’s go back to my analogy of I buy the house for 65, that’s worth a 100. And I put five in, so I cash in now I put a 25% down payment on 65,000, which we want to run the math on that really quick, it’s 16 grand or something, plus 5000 on it 21,000 in, within a year or two, I can refi my note. So instead of appraising at 100, now it appraises at 125 and I can take all of that initial investment back and some as long as it’s cash flowing 300 a month.

What my partner and I have done is instead of waiting the one to two years, we actually refi at closing. So if I can buy a property more than 25% below market based on an appraisal after a pair appraisal, they’ll give me a check at closing for the difference. And we have homes we buy at 50% below market, and the bank is writing me a check for 25% of the value at closing.

Aaron: And that’s tax-free income. It’s tax-free because you get a loan. So it’s like anytime you refinance something and you cash out above you get that.

Jeff: It’s just like pulling money in a home equity line of credit.

Aaron: Yeah, you get that money but because you owe it, it’s not. The biggest message again, as we go into kind of these last pieces of news here is like; it’s about if we hadn’t learned anything with the idea of these businesses that were successful getting shut down, it’s to diversify, it’s to diversify your income. I would even say, as you look to the types of houses to invest in, you never know what you might have to diversify for. It might be neighborhoods, it might be cities. The laws can change, stuff can change all of a sudden, so just don’t put all your eggs in one basket anymore.

Jeff: Warren Buffett who lives 10 miles from here would say, “You can put them all in one basket, just watch the basket.” So I agree with Aaron, though. Have multiple streams of income, great book out there Multiple Streams of Income we’ll kind of speak. Aaron, if you don’t mind, I’d love to invite anyone that’s found value in the things I’ve shared today. If you’d please follow me on Instagram @JeffMCohn and then of, course, go out to the Team Building podcast. We’re on iTunes, Stitcher, YouTube channel, you just search the Team Building podcast JeffCohn, C-O-H-N. How can my people follow you Aaron?

Aaron: Yeah, and it’s the same thing. So come find me at Instagram, that’s @Aaronamuchasteguiand as you type Aaron and then you get to like the a-m-u, it’ll probably automatically find me. We already have Rockstars on Instagram and our Real Estate Rockstars Radio podcast Anywhere podcasts are and on Heibon digital and that was that was one of the big goals Jeff and I had today.

I know we’ve only got a couple more minutes that’ll– the very last thing, Jeff, before we jump off, these three articles are so contradictory to each other. We’ve got Inman saying home prices continue to rise in May. We’ve got another Inman article says median existing home prices rise for a hundredth consecutive month, and I have a Bloomberg article saying home prices in the US poised to slide following the surprising rally. And in this one, the CoreLogic chief economist, so we’ve been talking about a lot of good news, we’ve seen a lot of good news. He says that–

Jeff: Not speculative, just so we’re all clear. We’ve seen factual data when it came out in May and even June numbers, factual data in most cities, that the real estate market is up, their values are up and the inventory is down, so it’s a strong real estate market, factual data–

Aaron: Yes. Strong real estate market on actual data. Now the forecast, the chief economist at CoreLogic Frank Nothaft asked, this just a couple of days ago, said, there’s a 75 and I guess when you look at chances, 75% chance of price declines in 125 metro areas before next May, and he said prices in Las Vegas will plunge 20.1% as a plunge in tourism combined with values that were inflated. Man, I think that is–

Jeff: No I don’t have a problem with that. In Vegas I have no problem with that. Go to Kauai. Go to any of the main islands. Go to any of the resort destinations Coronado, Hilton Head, it’s a struggle right now because people are going to– I think they’re gonna fall for closure. This is a conversation I wanted to have is where can we find value? Sorry, where can we find a strategic edge in our ability to acquire property from people that have had these challenges to rent the properties because of COVID.

So I don’t know that he’s off on Vegas. As far as saying it’s going to be declining till next May, look at any charts. You look at Q1, Q2 typically always performs the best, Q3 second best, Q4 third-best and Q1 is the worst. So he’s just using analytics that it’s always declining. It goes up and down throughout every year look at the market. So he’s making a judgement based on the last 10 years data and that’s accurate. After the Summer, the market is down, New Year it goes down and starts coming back up in March, people start going under contract March, April, May they close over the Summer because they want to move all the kids who are in school or college. So he’s not wrong.

Aaron: Yeah, it’s–

Jeff: It sounded and this is how the media twists it. It sounds like it’s going to plummet. He did give us percentage on just Vegas, but it is going to go down probably now through the end of the year the market will go down because it does every year. That’s the nature of Q1 through Q4.

Aaron: That is the nature of it. And so for the Team Building podcast listeners and Real Estate radio listeners, hopefully today, you guys got to hear a bunch of thumbs up. Obviously, you guys can hear Jeff and I we just love talking to each other. We love chatting, we love getting to talk about the news and see what’s out there, and we get to see it from a lot of different perspectives.

We wanted to be able to challenge you today to look at the news a little different. I had a guest on the podcast a while back that said, hey, when you listen to the news, look at it from all different angles. If you hear Tesla’s opening a factory there, maybe it’s trying to figure out who is going to supply Tesla? Or is there a new home neighborhood going on there? Or what stuff is nearby? Listen to the news to say how does it affect you, but then also take it with a grain of salt. So that headline said, ‘Home prices poised to crash after a surprising rally’, which isn’t necessarily inaccurate, but Jeff re-explained that headline to go, Yes, it’s true, but there’s a little bit difference.

Jeff: So what does the word crash mean semantically, and I think too, Aaron if I can piggyback on this topic. The people that are writing those articles are not as expert as you. The people that are writing those articles are getting paid by an institution that’s capitalistic that wants to turn a profit. Don’t think that headline well wasn’t to get someone to click so that they could sell ads to other companies that are selling things to Aaron.

Every one of us when we click on something, there we’re only clicking because that business makes money by you putting your eyeballs on the next screen and go look at the ads that run on the next screen, they’re probably going to be very similar to the things you’ve been talking about next to your cell phone over the last seven days.

Aaron: Yeah, you’re exactly right. I clicked. The headlines make me click. We look at them, and we see what is really going on out there and it’s always really funny when you see three contradictory articles posted at the same day, and probably a lot of the same statistics. Well, again, Jeff, I’ve been so glad to be able to get you back on here. Real Estate Rockstars. If you like what Jeff is saying, go subscribe to the Team Building podcast. How often do you guys do the podcast?

Jeff: It’s twice a week, I’m sorry. We usually will release one to two a week, twice a week.

Aaron: That’s our schedule we’re doing right now with the Real Estate rockstars radio as well. We’re doing twice a week we were doing three times a week before everybody went home. And when people are driving less than their cars, they have less time to listen to podcasts, so–

Jeff: So we keep them 25 minutes, and they are intense. Just like this one. We’re into everything. There’s no dialogue. There’s no list of questions. People want authenticity, Aaron, and I think that’s what has made you so great. That’s what helped Pat Heibon have so much success with Real Estate Rockstars. And it’s funny, I was a guest several times on Pat’s show. That’s actually how I got invited into Gobundance, was through Pat interviewing me as an agent. When I took my team we went 70 to 240 sides in three years, and 70 to 700 sides in six years.

We listened to every Real Estate success podcast and literally, we took the blueprint from all the interviews Pat had had as well as two or three other top podcasts. That’s how we constructed our team that grew to be the number one team in the world at Berkshire Hathaway in 2019. For anybody out there that wants to know how to do it, listen to Real Estate Rockstars they’re going teach you step by step. Go all the way to the beginning and listen to them or go start now and then go backwards but you guys do an amazing job.

Aaron: Thank you. Thank you so much. Jeff teaches some of our classes on Rebus University and on it he’s obviously doing a lot of investing out there and teaching that too. So, thanks again for listening. And we will see you guys next week.

Jeff: Thanks Aaron.