Why Real Estate Investors Must Stop Looking at Properties with Keith Weinhold

0:01Boom! Shake the room, Fire Nation. JLD here and welcome to Entrepreneurs on Fire. The only daily show interviewing the world's top entrepreneurs seven days a week. Today, we'll be breaking down why real estate investors must stop looking at properties. To drop these value bombs, I brought Keith Weinhold in the EO Fire studios. Keith is the founder of Get Rich Education, Forbes Business Council member, host of the Get Rich Education podcast, creator of Real Estate Pays Five Ways, and runs up Alaskan mountains shirtless. In today's foundation, we'll be talking about living extraordinary lives. We'll talk about starting with real estate with just a little money, and how to ethically use other people's money in real estate and oh, so much more.

0:42And a big thank you for sponsoring today's episode goes to Keith and our sponsors. Take control of your data and keep your private life private by signing up for Delete Me. Now at a special discount for our listeners. Today, get 20 % off your Delete Me plan when you go to joindeleteme.com slash EOfire and use promo code EOfire at checkout. Keith, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. What's up, Fire Nation? You know, the thing about making people successful that most people disagree with is the fact that you probably need to have more debt, especially if you own real estate, whether that's rental property or even your own home.

1:35Yes, John, debt is probably my favorite four-letter word. If it's not, then it's the word loan. I have had millions of dollars in debt from a young age, and I just keep piling it on. Let's go, Fire Nation, as we talk about why real estate investors must stop looking at properties. Now, Fire Nation is not listening to entrepreneurs on fire because they want to live ordinary lives, Keith. We all want extraordinary lives. How do we attain this? It is paradoxical. I mean, I'm going to share things with you today that you've never heard before. I probably already did. And you know what's interesting, John?

2:17If you just ask a person on the street, do you think that you would have to think and act differently in order to build real wealth? You know, that person on the street will probably agree. Well, sure, you've got to think and act differently. But you know what's funny, John, as soon as you tell that person what those specific things are for thinking and acting differently, they get a little scared. So to live an extraordinary life, really get your money right. That helps you buy time and set up the kind of life that you know you owe yourself and you've always wanted. You can either be a conformer or you can be wealthy.

2:57Choose one of those two things. And, you know, Mark Twain actually has a quote about this, John. I don't know if you or your listeners have ever heard it. It's one of his lesser known quotes. Mark Twain said, go out on a limb. That's where the fruit is. So good from Mark Twain. He's so right. Most of us don't go out on a limb. We work hard. We eat dirt. We put in overtime. We postpone vacations. We over-prioritize paying down debt so that we can start living the life that we think we really want at age 65. I'm saying if you want to live an extraordinary life, do it at age 35. There is a risk to postponing the best things in life until you're 65?

3:49How do you even know you're going to be physically able enough to enjoy everything at age 65? And you know, John, delayed gratification, I think that is a virtue in some contexts for the short term, but most people delay gratification decade after decade. There's a risk with too much delayed gratification in it becoming denied gratification. So my point is, think like a wealthy person with an abundance mindset, and you've got to think and do differently. It all starts with what's going on inside your head. I love all of this. And Fire Nation, I can tell you one thing. If you're listening to this show, you are not likely a conformer.

4:33You don't want to conform. And guess what? That's a good thing. Now, I look around these days, Keith, and man, real estate is expensive, especially in certain parts of the world, certain parts of the United States. How can we start with just a little money? Real estate is expensive. This can be daunting to people. So how can you start with little money? Realize that you almost have to. Wealthy people's money either starts out in real estate or ends up in real estate. And once I had that epiphany, John, the way I got in with very little money, a lot of people don't know about this is with just a three and a half percent down payment and an FHA loan, a program that still exists today.

5:14Okay. So we're pivoting off the mindset into something actionable here. You can buy either a single family home, duplex, triplex, or fourplex. So I made my first ever property, a blue fourplex as it was in Anchorage, Alaska with a three and a half percent down payment. I lived in one unit, rented out the other three. You only need to live there a minimum of 12 months to qualify for this program. And your minimum credit score only needs to be 580. Now, a higher credit score will give you a lower interest rate. But this is how you can get in with very little money. And John, you know, the takeaway that I really got from this fourplex after owning it for a few years.

5:57And again, I'm going to say something paradoxical, something iconoclastic here. You got to think differently. Here's what I learned. Don't focus on getting your money to work for you. Most people have heard, oh, you don't want to work for money. You want to get your money to work for you. No, don't make that the focus or you're never going to get ahead and build substantial wealth. So what's the paradigm shift? Ethically get other people's money to work for you. And by putting a small down payment on this fourplex, I was using other people's money ethically three ways at the same time. The government's money for the loan, a 96.5 % loan.

6:38Remember, I love debt. The second way is I was using the tenant's money and that income to control the property, its mortgage, and all of its expenses. And then thirdly, I was using the government's money for generous tax incentives at scale. using other people's money three ways at the same time with a small down payment on this fourplex building really fueled my wealth. And here's the thing, John, I'm not talking about something that's esoteric or takes a whole lot of grit and grind. We're just talking about buy and hold real estate. That's all. We're not flipping. We're not wholesaling. We're just using normal loans.

7:20Buy and hold. That is all. That is how you can start in real estate with very little money and that's why it generates wealth. You mentioned Alaska. When's the last time you've run up an Alaskan mountain shirtless? You know about that. You've got a good memory, John. That was just about five days ago, actually. So yeah, that is something that I do for fun. I live in Anchorage, Alaska, a modern city of 300 ,000 people, but yeah, I've got great access to wilderness and mountain running too. I love that. I love it. Fire Nation, we have so much to talk about all around this topic of why real estate investors must stop looking at properties when we get back from thanking our sponsors.

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11:06That's joindeleteme.com slash EOfire, code EOfire. Keith, we're back and you believe that real estate investors must embrace debt. We've already talked about this a little bit. You've given us some great ideas and calls to action, but I really want to dive deep into this mindset and to the why. Why should we embrace debt? It's a tool that allows you to do more with less. Now, what's the risk here in taking on too much debt? The risk is if you become over leveraged and you simply don't have the income to make your payments. So we don't want to get too much debt. But you know, John, I've learned in my life, a lot of people don't understand some rather fundamental things with debt and especially where it intersects with inflation.

11:54John, you and I are pretty savvy guys. We've been around the entrepreneurship and business world for a while. We would not put a million bucks under a mattress because we know inflation would debase its purchasing power terribly. If you just have 10 % inflation over two or three years, now that million bucks under your mattress only has 900K of purchasing power. Most people get that. Here's what they don't get. If you do the opposite thing and borrow a million dollars, say for an apartment building, inflation debases your debt. So if after one year you've got 5 % inflation, now you only owe the bank back$950K in inflation-adjusted dollars.

12:38And with 5 % more inflation, now you only owe the bank back$900K in inflation-adjusted dollars. The bank doesn't ask to be repaid in inflation-adjusted dollars, only nominal dollars. And when you borrow this way for real estate, like an apartment building, maybe you're wondering, well, wait, wait, wait, wait, wait. What about the interest that I'm paying on this million dollars? No, when you buy a property, you want to buy right. You want the rent income to exceed the expenses. That means all of your debt payments are reliably outsourced to tenants. So we know that they're paying down the principal for you on this million dollar loan as well.

13:18But they're also making the complete interest payment in a cash flowing property. And they're paying you a little bit on top of that called cash flow. And I know this might be daunting for some people thinking, oh, maybe I can't afford a million dollar apartment. Your head's in the clouds here for a little bit. Hey, it's the same with your twenty thousand dollar car loan. If you've got five percent inflation after a year or two on your 20K car loan, now you only owe that lender 19K. Now, you can't outsource your debt with your car loan. That is yours. But I want more debt because most of mine is for real estate.

13:57All of my debt is reliably outsourced. So the reason really, John, I want to keep my debt in place is that even with my same equity amount, rather than owning just a million dollars of real estate, I can own five million dollars worth of real estate. And savvy people had this figured out. In fact, oftentimes the richest people have the most debt. When Mark Zuckerberg and his wife bought their property, they could have paid all cash many times over. They didn't. They got a loan. Prince Harry and Meghan Markle did the same thing. Jay-Z and Beyonce did the same thing. I do the same thing. And, John, if people are still trying to get their head wrapped around this, you and I are each entrepreneurs.

14:42We have a lot of entrepreneur listeners. Say that you, the listener as an entrepreneur, oh, just say that you're paying an employee$100 ,000. I pay an employee$100 ,000 here at Get Rich Education and say that 100K employee makes you 300K. Well, why would you fire that employee? They're making 3X for you. The same way, I wouldn't want to retire my debt because by having that debt in place, I get a higher leveraged return than I would otherwise because I can own more real estate. If I own$5 million worth of real estate rather than$1 million, I have five times the appreciation. I have more tenants paying my loan down.

15:26By owning$5 million worth, I can be in multiple different geographic markets now and actually lower my risk by being in all those markets. I'm getting five times the tax advantages as well. So I want this debt. This is a good thing. And John, maybe just something else more basic here. Just say there's a woman named Chloe. Say Chloe has$10 ,000 in assets and$10 ,000 in debt. So what's that make their net worth? Zero. Your net worth is assets minus debt. All right. Well, if you just go pay 10K of your debt off, what happens to your net worth? Absolutely nothing. You've now got zero assets and zero debt, and you've also lost liquidity.

16:12So these are some of the virtues of debt, a lot of them are counterintuitive. And you know what's funny, John, to pick up on a point that I brought up earlier, I've had millions of dollars in debt from a young age. Well, that just sounds terrible if you hear that a man on the street has$5 million in debt. But you know what that man on the street with$5 million in debt probably has? Probably some really good credit. He or she is probably really credit worthy. and we're only looking at the debt column. If that person with five million in debt has 15 million in assets, that's a$10 million net worth.

16:48You want to use debt as a tool for leverage. Compound leverage actually trumps compound interest. So these are some of the virtues of debt as counterintuitive as it is. Inflation pays it down for you and in a rental property, tenants pay it down for you simultaneously. That's powerful. I mean, Fire Nation, compound leverage. That is really a powerful phrase. A lot of value bombs there. Now let's get to the title of the episode because I think a lot of people are scratching their heads. Why should real estate investors stop looking at properties, Keith? Yeah, right? That gets everybody. Wait, you want more debt.

17:30And a lot of times when people listen to me talk about real estate on the Get Rich Education podcast, they want to jump in, John. and buy a property. And then I have to tell people, stop looking at properties, which is another counterintuitive thing. People are like, well, don't I need a property in order to get all these benefits that you're talking about, like the leverage and the cashflow and the tax benefits and tenants paying down my principal for me. Yes, you do need a property. But when I say stop looking at properties in real estate investing, the property is only the fourth most important thing, which throws everyone off.

18:07The most important thing in real estate investing is you. What do you want real estate to do for you? Think that through. Are you looking for something with a lot of appreciation, something that you might not really benefit from for 10 years? Are you looking for cash flow where you get monthly passive income, where the rent income exceeds the expenses? What do you want real estate to do for you? Once you've figured yourself out, the second most important thing is the market. Oftentimes we're talking about geography here. You need a market where when you buy a property, you have a reasonable expectation that 18 months down the road, when your tenant vacates, you're going to have another rent paying tenant.

18:47So job growth market is actually the second most important thing before you've even gotten to the property. And then the third most important thing is the team of professionals that you surround yourself with your mortgage loan officer and your key property manager. Your property manager is what makes this whole thing passive. I don't self-manage any of my own properties. I would not want any of my dozens of tenants texting me about a problem because my quality of life would go down. So the team is the third most important thing. Once you have those three things figured out, you, the market, and the team, ah, now you're ready to look at a property.

19:28Now you're being strategic. Now you're being smart. And here's the thing, John, you know what most people do rather than going one, two, three, four, they go four, three, two, one. They start with the property because they drive both ways to work every day and they see this green duplex and they think, I've always wanted to own that property. So first they buy the property, which is only the fourth most important thing. And then soon they realize I don't feel like managing this. And then they go try to find out if there's even a good manager in that market. And then they go to number two, they try to even figure out what that market is and if there's enough population and job growth in order to give them tenant rent income the whole time.

20:10And then they go back up to number one, you, like, what did I even want this property to do for me anyway? So this is why I tell people that they've got to stop looking at properties once they get excited about real estate, because the four most important things in order are you, the market, the team, and the property. Fire Nation, I love this because almost everybody's doing it to the exact opposite way. And that's why they're struggling. So, so important when you have the knowledge to do things the right way from somebody like Keith, who has the experience and knowledge. He's been there, done that, and he has the diploma that, of course, he comes with time and experience.

20:50So let's talk about gaining the upper hand, Keith, because I want to really end with a bang here. So where can we find a real estate advantage in today's market? Does it exist? Yeah, you can find a real estate advantage in any market. And, you know, today the word is affordability. There's been constrained affordability. I mean, that is common knowledge to every person on the street because you have higher real estate prices, you have higher mortgage rates. And, of course, now we have insurance premiums coming in in a lot of markets, too, and really spiking hard. So where do you get in in today's market?

21:30Well, first of all, when you think about how the affordability is so poor for these beleaguered, wannabe, first-time homebuyers that have almost no hope of putting together a 20 % down payment for property, what does that mean? That means that they stay in the renter pool longer and can't become homeowners. This is good for you. Don't feel like you're taking advantage of them. You're serving them with a need. So what I do, John, on the Get Rich Education podcast is I help people find the right income property. And my team of coaches does. And the place where the opportunity is right now is with new build properties, brand new builds.

22:15You don't have any maintenance to worry about for a long time. When a tenant comes in, all the finishes and everything are new. It's awesome. They typically want to stay several years. And the reason why now is the time in the cycle to buy new build property is because builders know that people that want to buy a property and rent it out to others, just like everyone else, they need help. Today, builders, we work with several in Florida, for example, John, they're willing to buy down your mortgage rate for you and pay those discount points at the closing table for you. Today, many are buying down your mortgage interest rate to under 5%.

22:58And we're here at a time when mortgage rates are about 7 % for owner-occupieds, 8 % on rentals. So this is how you can increase your cash flow, reducing your mortgage payment. that that builder is buying down your loan for you because that builder doesn't want that home sitting on the market, or they're just losing money and equity that they've got tied up in it. So putting a 20 % down payment on a 300K property, a lot of these new build properties are in the Southeast United States, and they're in what's called build to rent communities. Builders have built these tracks of homes specifically for an investor like you that wants to buy it and rent it out to someone else.

23:42That's where the opportunity is. It's in new build income properties. That's the best opportunity going this year and perhaps next year as well. Keith, I think Fire Nation's pretty fired up with a lot of the value bombs you've dropped today. So give us a call to action. If Fire Nation is connecting and really resonating with your content, how can they connect with you? Where can they learn more? I talk about this every single week on the Get Rich Education podcast, one of the first and longest running real estate investing shows in the nation. We're doing it every week. I do a lot of monologues where I talk to you and help you learn just like this.

24:22And we've also had some of the best known names in the industry be my guest as well, like Robert Kiyosaki, Jim Rickards, Ken McElroy and more. you can listen to me. I'll be here for you at the Get Rich Education Podcast. Fire Nation, you're the average of the five people you spend the most time with. You've been hanging out with Kdubs and JLD today, so keep up the heat. And for links to everything we talked about, visit eofire.com, type Keith, K-E-I-T-H, in the search bar, and the show notes page will pop right up. Keith, thank you for sharing your truth, your knowledge, your value with Fire Nation.

24:56For that, we salute you and we'll catch you on the flip side. Love it. Thanks. Hey, Fire Nation, a huge thank you to our sponsors and Keith for sponsoring today's episode. And Fire Nation, are you ready to rock your very own podcast? Check out our free podcasting course where I will teach you how to create and launch your podcast for free, freepodcastcourse.com. I'll catch you there or on the flip side. Take control of your data and keep your private life private by signing up for Delete Me. Now at a special discount for our listeners. Today, get 20 % off your Delete Me plan when you go to joindeleteme.com slash EOFire and use promo code EOFire at checkout.