Housing Expert: Everything You’ve Been Told About Real Estate Is WRONG! | Ken McElroy

26:58I don't give a, you know what? That's what I'm saying. You stopped Gary a long time. I don't know if that's FU money, if that's like, what are you going to say to me? It's a little bit of both, I think. Also, yes, you know, we have, we study together. We go to a ranch a couple times a year, literally in West Texas and study together. We study books. We're on a Zoom every week talking about this next week is actually Thursday. day is going to be, why did silver hit$50? You know, we always were picking something. So it just depends. Most of, obviously he's an investor with me. And so I talked to him about those kinds of things, but mostly he's just a good friend, but he can be a loose cannon at times, that's for sure.

27:45Now, I think for the average person, they just want to get started buying their first home. Yeah. Do you think that home prices today are sustainable at the levels of they are. Not at all. No, no, no. Well, here's the interesting thing. If you look at, let's say, Phoenix, Atlanta, Nashville, some of the areas that were overbuilt, Austin being another one, what goes up must come down, right? And so not every market is like that. To me, Graham, it always has to be cashflow-based 100%. So I don't buy on a capital gain strategy. don't like it. So I always want to have that cash flow. So where are prices?

28:26So I don't look at the home price like a stock. I don't look at it that way. Do I want home appreciation? Of course. Doesn't everyone, the same way that they want stock appreciation. But what I look at is cash flow. So if I can buy a$500 ,000 house, which you can still buy in Scottsdale, and it rents at$3 ,500 a month and I can figure out my expenses then I tie it back to my return. That's on an investment standpoint. One of the problems I think we have going back to the same example I used with multifamily is when rates went up, it also affected home builders. It slowed everything down. And so the way to cure high prices is high prices.

29:18And the way to cure the rent price, bring that down, the way to cure home prices and bring that down is supply. That's it. So if there was a lot of supply hitting the market, like I went through in 2008, 2009, prices came down, you know, like a balloon, boom. And we haven't seen that yet, which is really, really interesting. In fact, I think we've had a little bit of rent growth, one or 2 % or something this year. I want it to come down. The problem is, is that if it does, everybody's going to bitch. No, it's down, right? We cut, now I've lost my equity. But again, I look at cashflow. So, you know, sometimes I, many times I've bought things where it cash flows and the price goes down.

30:02It happened to me in Austin, actually. I bought apartments in 05, 06, and the values went down. But what saved me were the tenants, the cash flow. And it got me through. And then eventually Austin came rocketing back. And that's when we did a 1031 and moved the money. What about for the person who's not looking at cash flow? They just think, is it worth it for me to buy a house today at these prices, at these interest rates, or should I continue renting? It's a heck of a point. This is exactly why I'm bullish on renters. I know you've known, I've talked about renter nation. I don't like this. I have two kids in their 20s and they're supposed to be able to rent, build credit, buy a home.

30:43But they can't. It's unaffordable. And so the reality is, it's far better to rent today than to buy. Far better. From a cash flow standpoint, right? And that's not even covering the mortgages, one thing. But then there's the, I Bankrate did a great study that said it's$1 ,500 a month just to cover all the other stuff, insurance and CapEx and all the other things. So the real cost is actually quite high. And so what we need is we need better priced homes. And I think people are trying to solve that right now. But it's a problem. And so if you take a look at what's really interesting, one of the things that I follow is homeownership rate.

31:35So home ownership rate under Obama got to 69.1%. And if you look at the presidents before that, it was Bush. He's like American dream, even Clinton, American dream, American dream. And it pushed home ownership rate up. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best of both worlds. Get the Unreal College Deal. Everything you need to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 Premium and a year of Xbox Game Pass Ultimate with a custom color Xbox wireless controller. Learn more at windows.com slash student offer.

32:16While supplies last, ends June 30th. Terms at aka.ms slash college PC. Well, it's also what created the great financial crisis. Now, it's a whole story there. Of course, we don't need to go down that road. But essentially, it popped, right? And then it went all the way down to 63, 64%. Now, while that might not seem so meaningful, when you go that far down, you're talking about millions of people went from homeownership to rent. And that's actually what created the rent growth that we just had. You know, it's not because, you know, I magically started doing it. Like what happened with these is all these people, home affordability got out of reach.

32:59And all of a sudden, it didn't become a choice as much as a necessity, unfortunately. And so we had all these people being forced over into the rental side. And just from 2020, it's over 4 million people. I'm with you. I believe that people should, I believe that rental should be a step toward homeownership. And I believe that people should be in hard assets and not be rentals for life. How concerning is it that the average home buyer right now is 40 years old? That's horrible. Yeah, the median. I saw that. Yeah, the median. It's super concerning. And that's another reason why I think, you know, I didn't start this freight train.

33:41I'm just trying to be somewhere in the middle of it. But, you know, the reason I'm buying rentals right now, the reason I'm bullish on multifamily and rentals right now is because I don't see an affordability solution yet. And so when I've seen that in the past, it certainly happened with Clinton and Bush. They said, listen, everybody needs their own home. And then they moved from apartments to homes, to single families. They bought single families. Now, that didn't end well for a lot of people, but the reality is it's heading that way now. Now, what do you think of Ben Shapiro saying that homes aren't necessarily unaffordable, it's just you can't afford to live in Manhattan or Beverly Hills, and there are plenty of houses out there that you could buy right now for$200 ,000 that would be cheaper than renting, and it might not be the best area, but you could buy a home today in your price point if you were willing to move there.

34:37In Las Vegas, you can find places for like in the$200 ,000 range. Obviously, it's not going to be in the nicest area. It's not going to be the nicest home or realistically condo. You can still find places for$300 ,000. Yeah, and they're nice houses. Everything in Vegas is like a 20-minute drive. Yeah, for$300 ,000, you get a great house. Cole, if you're listening to this, that's my brother. I'm trying to convince him to move to Las Vegas because he lives in Seattle and Seattle is horribly expensive. My hometown. Horribly expensive. Yeah, it's my hometown. You're right. And it's just out of reach to buy a place there.

35:06And I'm telling him he should move to Las Vegas because he works remotely and he can buy a piece of real estate. I would say he should rent because the rents are so affordable and vague. He is renting, but he's like, I want to have a garage. I want to have a backyard. You can do more with that. Those are luxuries, Cole. So I was looking at a house that was down the street from me, like a half a mile away, and they're selling for like$500 ,000. But you could rent the house for like$2 ,100. I would rather rent the house for$2 ,100 than buy it for$5 ,000. That math works. So I think just coal, I would rent instead.

35:38I think a lot of people should be renting in this market. What do you think? What's he going to do? He wants to buy, but buying is going to be difficult in Seattle. I hope he can buy because I know a lot of people, they have this like emotional attachment towards buying. And I would say the exact same thing. I have a friend that lives in Manhattan, Sean Rizwan, if you're watching this, and he wants to buy over there. And it's not a good idea. And we were talking with Ryan Serhan about it because he's the New York real estate guy. And I was like, my friend in New York wants to buy a place, but it's too difficult.

36:08And there are co-ops there. And then you have to circumvent the co-op and they have very strict rules. And you're just, you're overpaying for a piece of real estate you have no control over. The interesting thing is, is when I was your age, I would go to New York and it was the same. Like Beverly Hills was the same. Like it was always like significantly above everywhere, right? Seattle wasn't, by the way. It was less expensive. Yeah, yeah. That's where I grew up. I imagine Las Vegas was dirt cheap. Las Vegas was dirt cheap. I lived here 20 years ago. It was crazy. I come back. I'm like, I cannot believe the prices.

36:39I got a funny story on this. In 2010, I made an offer on a property in Las Vegas. Sight unseen, it was listed for$69 ,000. And I got the offer accepted. It was a short sale. So it had to go through the bank to get approved at that time. And the bank could take a year, two years, whatever. So I get the offer accepted. And then I drive to the area after it was accepted. And I think this is in the middle of nowhere in Las Vegas. Who would live out here? It was like 20 minutes from the strip. I didn't see it. It was dirt lots around. It's like, to me, it was so far out. It was on the edge of Las Vegas.

37:19And then by the time the short sale was approved, it was like two years later, I had already bought something else and I declined it. The bank, I think at the time, wanted like 75 grand. I thought it wasn't worth it. It was so far out. So I declined on it. I looked it up recently. Oh, you're not supposed to do that. Just for fun, I didn't realize that was Summerlin. It was Summerlin. It was Summerlin. How much was it? $75 ,000. Now it's probably about$400 and something thousand dollars. So not awful, but it was in the middle of Summerlin. And I remember seeing that 15, 16 years ago. And just having it be in the middle of nowhere.

37:56There are places to buy real estate that right now are very, very, very cheap if you want to buy. But it seems like buying is a very emotional decision at this point and not so much a numbers-based one. Yeah, for sure. Yeah, yeah. In the path of growth would be one of those places, I would think. But yeah, you never know. Most health apps only do one thing, track your sleep, your steps, or your calories, and then they expect you to connect the dots. But today's sponsor, Bevel Health, finally fixes that. For those unaware, it turns your iPhone and Apple Watch into a powerful health hub that tracks everything from nutrition, sleep, workouts, recovery, stress, and habits, all in one clean, connected dashboard.

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39:06With over a million downloads and a 4.8-star rating on the App Store, Bevel's quickly becoming the go-to for people that are serious about their health. Try Bevel Health for free for a month at bevel.health with the code ICE. Again, that is bevel.health with the code ICE to get one month free. And the link is also down below in the description. Bevel.health. Thanks again for sponsoring this episode. So if you think that housing prices right now are not sustainable, what are you expecting then for the price of single family homes? Do you think that there will be a correction? They will go down?

39:38I don't. No, I don't. I don't. First of all, I think 60 % of mortgages are under 40 % or 4%. They refinance. So you got a tremendous amount of people sitting on these low rates. And so what we're seeing right now is we're seeing broken Airbnbs or, you know, flippers or something like that that got caught. And that's kind of adding to a lot of inventory. But, you know, if you go back and look at MLS, what's supposed to be average is four to six months on the MLS. That's supposed to be average. That's historical. We're not even there yet. So, you know, do we have a supply problem in some areas for sure, but not in all areas.

40:24And so I don't see home prices going down in the foreseeable future. And I think the only thing that's going to make them go down is more supply. Or there's going to be a massive shift somehow. So what's driving up the cost of real estate? If it's just not a smart thing to be buying, what is keeping that outside of that smart to invest range? Yeah. Well, and that's why we're buying below replacement costs, actually, is because that is the play right now, we believe, is if we can buy things that are, you know, like you've all driven by things that look amazing when they're built and 10 years later, it's faking.

41:05Well, you're going to buy that for pennies on the dollar. So the question is, can you make it cash flow? So to answer your question, the components to build something are not a secret. It's land plus the construction plus the interest rate to build it. That's it. And then is there margin on there or not? There's only three things. Now, inside of the what does it cost to build it, there's lots of things you can do on the framing, on the appliances, on the flooring, on the roofing, you know, on the drywall, concrete and all that stuff. All those components mean something. And they ran up during the pandemic, as you know, the supply shortage.

41:48you know we're a builder too so we have we have hundreds of units under construction right now we got caught with that you know cost went up a lot now we've seen a repricing and so why would we see a repricing we've seen a repricing because just like anything well my partner said we're we're getting electricians they're calling us back you know less construction means more contractors looking for less work. And so you have a little bit more negotiating room. So believe it or not, our prices are actually much, much better than they were just several years ago. The interest rate's still high though.

42:28How much does government policy affect housing prices? Everything, it's everything. Regulations are everything. Rent control, big one. Rent caps, big one. Property tax, big one. all those things, you know, government has their hand, utilities. What is the worst thing a government could do for their local real estate market? Well, I think if, what's happened is when we saw Oregon pass rent control, for example, and I understand why. Listen, I mean, I'm a massive proponent of affordable housing. It's just, we can't build it. It's just, it costs too much. So when Oregon passed that law and California, of course, has a lot of those laws and so does New York and so does some of the other, you know.

43:20So I was talking to one of the bigger lenders in the country out of San Francisco. And I said, hey, like, where are you guys? Where's the money going? Right. Where's the big money going? He's like, not on the coasts. And what he basically said there was, you know, when you cap your ability to profit from the market rent and then you are exposed to the property tax increases and the other things. So the government can essentially increase your expenses and they can also cap your income. The money, as you guys know, you know, money goes where it's treated best. I mean, that's why you're talking to your brother about coming to Vegas versus Seattle.

44:01It's the exact same thing. People are smart. They make those kinds of decisions. And so I've had people call me and say, you know, I can't sell my property in Oregon, in Portland, Oregon, specifically because, you know, it falls under this rent control. And he said, I'm getting hammered on the expenses. And so his profit has gone significantly down. So he's worried. So when you talk about regulations, that's the first thing that comes to mind. what do you see to the people who say it's unethical to own so much in real estate? Yeah. Well, uh, there, uh, I mean, I understand. I mean, if they don't own anything that, I mean, that's actually what's happening right now.

44:45Just take a look at, you know, what, what just went down in New York, right? Like, I mean, shouldn't rent be free? Shouldn't transportation be free? Shouldn't everything be free? I mean, right.

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45:41Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. that's the mindset correct that's recent but it's not recent right that's been going on forever so what would you say to people that claim that it's unethical to own that much in real estate or say that the corporations shouldn't be buying real estate who should own it then i guess would be my question back to you somebody asked on it you want the government their logic is that corporations should not buy real estate investors should not buy real estate that real estate is a human right to have housing and therefore the only people who should be buying real estate are owner users or people buying one property one property one person yeah let's just say well i know there's a lot of people that believe that the if you take a look at you know government has failed on housing i mean there's history just proves itself and we don't even need to go down that road they're not good at it right so then where do you go and you go to the private sector So if you want to throw regulations around that, then go ahead.

46:55But right now there aren't any. But, you know, corporations have gotten the game for sure. I mean, they started buying up single families, you know, after the GFC. And, you know, but listen, I get the argument, but what they don't understand is who's going to build them? Seriously, like answer that question. We have, what, 5, 6 million undersupplied right now? I mean, that's where we are. Depending on the study, I mean, the Low Income Housing Coalition is even higher. But National Multi-Housing Council, the National Apartment Association, Realtors, Zillow, they all say it's 4, 5, 6 million. So, okay.

47:39So, where's that going to come from? Who's going to do it? Somebody. So, is you going to do it by one-offs? Like, it's not going to work. The math doesn't work. You know, if maybe you get it to stability and then you implement a regulation, I guess. But, you know, we have a supply problem. So to better understand this, your claim is that if they make it harder for people to buy multiple houses, for institutions to buy real estate, and there's, you know, people with less money bidding on houses, it will decrease the cost of housing, which will disincentivize builders from building more houses. which will disrupt the real estate market.

48:18Well, I don't know if it's a claim as much as it's a fact. Like, take a look at, we're undersupplied. Let's just, let's cross that box out first. Do you guys believe we're undersupplied? You know, we've talked to several people in real estate who say there is not a housing shortage. It's just people can't afford to live where they want to live. And if you look throughout the country and you go to other areas, there's plenty of housing for everybody. So the reason I think that's not right is because of the 40-year median that you brought up. But that's more to do with prices and it's more to do with people not making an income to support the house.

48:54Correct. But they could. That's my point. But those people could buy a house somewhere else in the country. But supplies everything. Like if you guys, you want to go to the Super Bowl, you're going to pay a lot for the tickets because everybody wants them. Or you're going to go to one that nobody shows up to. Well, the tickets are going to be half off. it's a supply demand problem. Yeah, but you can't add more supply necessarily to dense cities. Like let's just say the coastal areas without tearing down what's already there and building up. That's 100 % true, which is why we have urban sprawl, right?

49:28It's been going on a long time for sure. But this is a supply problem. It's, we have, if you go back and look at one of the things that you guys, when in 2008, I don't know if you guys were, 18, I guess. I was 18. I was 10. How old? I was 10. Jack's like, all right. Say it again, Jack. How old are you? 10 years old? 10 years old. Well, so here's what happened. And I went through this. In 2008, it was bad, right? People were losing their homes and it was not good, right? And there was a big repricing. Here's what did not happen. Building. Building. 2008, 2009, 2010, 2011, 2012. So when there's big corrections, and by the way, here's what did not stop.

50:24People kept being born. People kept graduating from college. The population growth, as you guys know, is growing by a million to two million a year. Okay, so the math, it's really simple. Like you have, when you have that many people during that period of time, we needed, we needed housing. So we never corrected from about 2008 to about 2018. And then it started again, actually. We started getting going again, right? And, and we, we, we started and then pop. We had the pandemic and then now, you know, now we're in the situation we're in. but we never caught up. This is, this is a, you know, this is going back to nearly a 20 year, the start of nearly a 20 year problem.

51:11And if you look at the 20 years prior to that, we didn't have problems. And, you know, there, there's a, there's a flow when, when people are born and people graduate and people go move into their parents or out of their parents or whatever, there's a flow. Household formation is another big piece, but there's a flow. and if you restrict the supply of the flow of the demand which is the people you're going to have high rent high prices um and and then that's that's just a fact and that's where we are today and you know the last time we saw low prices was after the gfc or during the gfc can you make an argument against why institutions should not own homes yeah oh yeah yeah first of all i last i look, they only own like 600 ,000 houses, which is still a lot.

52:04Don't get me wrong. I think that's too many, you know. But, you know, I don't believe, I think real estate should stay at Main Street and Wall Street should stay at Wall Street. That's what I believe. And it is a lucrative of business, real estate. And I think what happened, well, I know what happened because I've been in this business for 30 some years. In 08, when there was all those single family homes on the balance sheets, and there was a lot, I want to say at one time, it was at six, eight million homes on the MLS or something. The Wall Street got involved. They started buying them for pennies on the dollar and they didn't know how to manage them.

52:53And I had friends getting into this business trying to figure that out. They were actually managing for some of these big, big institutions. And then they started exiting. And then, of course, you saw Zillow kind of got into that game and Open Door and some of these others got into the game. And who knows if they were price fixing or not? Who knows? But at the end of the day, is that a corporation? You know, and so I think, you know, I don't think it should be there personally. Yeah. I don't think so. I did this whole analysis on Wall Street buying real estate. And when I came down to it, just unbiased, it's really unpopular to say this, but they have very little to no impact on housing prices at all.

53:35I agree. And it's really hard for people to accept that Wall Street isn't to blame because it's so easy to point and be like, oh, this faceless corporation's buying single family home. No, they're not. They're not buying it. They don't care about Susie down the street listing her single family home and bidding against you. It's 75 % other owner users. That's it. And then another 10 % mom and pop investors. And then everyone else is like a mix between someone buying like a vacation home or, you know, a second property for themselves. The corporations really only buy about 1 % of properties. And most of what they do buy are development communities that were never meant to be for sale to begin with.

54:16It's not profitable for them to like buy Susie's home over there, buy Joe's home over here. and like manage them separately. And imagine like BlackRock going and trying to like fix up someone's faucet. It's like they're not going to waste their time on this. They're not going to waste their time on that. And so people want to say like, oh yeah, LLC shouldn't own a home. Well, everyone owns their house in an LLC for liability purposes. And then a corporation comes in, they buy a whole complex to rent it out that never would have existed if not for them. So I actually think, I'm going to say it, I think they're actually doing a service to the housing market by providing a lot of homes that never would have existed otherwise.

54:50So you're saying they're guaranteeing some sort of income for developers and then the developers will, based off of that note or whatever it is, build a community? Correct. So you have like invitation homes will buy all this land and they'll make like 200 single family homes. They're not interested in going and developing all of that to sell them individually. but instead they do it with the contingency that like you know another large conglomerate is going to buy this whole community and rent it out because they could operate at scale that never would have existed had it not been for the development and the corporation going in and that corporation's not doing it with their own money they're taking investor money and so like you could go in or grandma could go in invest some of her pension in this fund that rents out the houses it's not like some evil dude pulling the strings it's really unpopular people hate the idea uh but instead the biggest competition is your neighbor is your friend is your cousin going and getting a seven percent mortgage and buying the house and overpaying for it because they fell in love with the house that's the reality of it yep it's worth mentioning so in terms of ethics i It really doesn't matter.

56:05If anything, okay, I'm going to be one last thought here. I do think it makes sense if someone buys a second, third, or fourth home that property taxes should not be as subsidized as they are in a primary residence. So maybe if you buy a primary, you get a property tax decrease, but the person buying their third home as an investment, they get a slight increase every year. Something like that. So it's a small little tax. But with that being said, you should also be able to carry your note if you were to buy a new property. That would be awesome. That's impossible to actually implement, but I'm in favor of that.

56:45But it wouldn't be possible. It just won't happen though. So for the average person out there, to get into real estate, it's incredibly unaffordable. How does someone who doesn't make that much money get into real estate, buy their first property? Sure. Well, to live in would be very difficult. to invest in, not so difficult. So again, I always go back to the basics. I have friends right now that are crushing it in Ohio, as an example. And they're raising money, somebody else's money, and they're using that as the down payment. And they're signing on a debt and it cash flows. And then they split the cash flow with the investor.

57:28So that's how you buy real estate with no money. It's not about money. And I think that if there's one thing that people like to hang on, it's that. I need money before I can do something. It's just not true. You actually have to find something that you can create massive value with or cash flows. And then find an investor that will ride along with you, just like you did here. It's the same. Is there any area you won't invest in? Oh, yeah. Which ones? Well, areas that are highly regulated, for sure. We've never invested in California. Why not? Because of those reasons, mostly around the eviction laws.

58:13Now, I just believe that they're pretty heavily weighted toward the renter. I know personally people that owned small places, two units, four units, eight units, that they rented to the wrong person and they stayed in there for a long time and they couldn't get them out. And they still owed the mortgage. They still owed the expenses and they lost the property. They had to file bankruptcy. So those kinds of things are big. Property taxes are big. insurance is one. So I almost bought in Florida, but the insurance rates are over double what they are in Arizona. If you buy in the Gulf of Texas, like say Houston, Baytown area, they're double.

58:58And Dallas is less than Houston as an example. So there are things that you know and you find out over time that you want to be careful of. But government regulation, anything that capture income and expenses that could go out of control. The other one, of course, on a smaller level are these HOAs. What's happening right now with the HOAs is that they're managed by people that are Just regular people, right? They don't understand, you know, like a 10-year CapEx study is and how much money should be put into the reserve account every month. And so what happens is you're starting to see these big assessments hit.

59:41Oh, yeah, I got hit with so many. So that's what it is, right? It's just poor management. And I've done a bunch of these types of buildings. And so that's another one. I know my wife had a listing. She sells real estate. And the price was one bedroom was like 300 grand for a nice building with an elevator and beautiful building. But a little dated, the HOA was 800, the HOA. Not the payment, you know, not, you know, so, so that's just the HOA. So the seller was having a tough time selling it. And there was also a, uh, an assessment. So, so, so I think, I think HOAs and condo projects are going to be the next ones that you see poorly run, um, where you're going to start to see, because as these properties get older, they need roofs, they need paint, they need parking lot, they need all that kind of stuff.

1:00:43I just walked on to, you know, this morning and I was looking at the, I was looking at the trees and I was like, you know, that's what I do when I walk properties. I look at the deferred maintenance and drives me nuts. And, you know, immediately I'm calculating all the costs, um, that somebody has neglected and whether it's the pool, the common areas or, or whatever. Um, and that rolls up for a condo owner into their pocket. So I had an interesting HOA story. I didn't share this with you recently, but a couple of years ago, I got a letter on my front door that said, you need to trim your palm trees.

1:01:17And so what did I do? I called my landscaper. I said, hey, could you trim the palm trees? He said, yes. And then he came over, he trimmed them. I solved it in a few days. I emailed evidence to the local HOA and I said, hey, look, I trimmed the palm trees. Here's a picture. And then they said, oh, thank you so much. I'm forwarding this over. I'm just gonna use the name Jim. I'm forwarding this over to Jim. Jim says, thanks so much. I appreciate the evidence. Everything should be good to go. And then I emailed back and I'm like, just confirming everything is good to go. Never heard back from Jim again.

1:01:48And then I assumed everything was okay. Fast forward two years to a couple weeks ago, and I get a letter in the mail from the HOA, and they said, just letting you know, you owe a bunch of money in fees because we increased the HOA dues. And I didn't know that. I had it on auto pay. I assumed it was like Spotify, like Netflix. When they increase the monthly subscription, it just automatically pulls the correct amount. They never notified me of a higher HOA. It was only in the documents that they provided for the new budget of the year, which I'm not going to read. It's like a 20 page document. That's where they informed me of the new dues.

1:02:23And so I had all of these back fees for not paying it. And then they had penalties. They charged interest. They did everything to make me owe hundreds of dollars because they didn't notify me except in this new budget document that they sent out like 10 months ago. I go into the HOA office because they don't answer their phone. I tried calling them for weeks. I show up to the HOA office, wait in the waiting room, go into the lady's room, and she says, oh, on top of these fees, you also owe fees from two years ago for this palm tree incident. And I owed over$1 ,500. Yes. And this is because they started charging me$50 a week for not trimming my palm trees, even though I sent evidence.

1:03:05I said, here's my email chain. I had it solved. Here's all the evidence that you need. And then she said, who are you talking to, Jim? And I said, yeah, I was talking to Jim. And then she said, I don't know Jim. And I was like, well, what do you mean? This is who I was forwarded to. and she said, oh, that Jim passed away. And he had actually passed away and he never fully confirmed that I had submitted evidence of me trimming the palm trees. Whoa. And then I was like, well, I am so sorry to hear that. That's awful. Because I was all up in a rage. Like I was ready to like, okay, well then I did this and I did this and you told me to do this and I did this.

1:03:42And then she told me he passed away. And I was like, oh my gosh, I am so sorry to hear that. But also what are we doing about these fees? Yeah. And then she said, it should probably be okay. I'm like, what do you mean probably? Like I did what you told me to do. Imagine she passes away the next day too. And then I just have to deal with this again in two years and I have$10 ,000 out. So I don't know. HOAs, like this was a whole pain in the butt because of things that are so simple to solve. Notify me instead of just, they never notified me that I was not paying the full HOA email. They do it by mail.

1:04:12No, they didn't. They never sent it. They never emailed me. They never sent me a notice that I was not paying the correct amount in fees. It was only in the budget. And then finally I got this notice saying you owe hundreds of dollars in fees. By law, it has to be over mail. You probably got... They never sent me in the mail. I went up to them and they said, oh yeah, we never sent it to you. So maybe there's something there. If you guys know a lawyer, I'm kidding. The HOA is fine. It's not that expensive. But it's this whole ordeal that you have to deal with with HOAs that you don't have to deal with if you don't have an HOA.

1:04:36I think it'd be great to do a parody like a movie, you know, like an HOA board. That'd be the best. Gosh. It was actually comical. It was comical walking into the HOA office. I go into this lady's office and there are boxes of papers. stacked floor to ceiling in this tiny, tiny office, papers strewn across her entire desk. There's a check sitting right here. There's another check over here. And it's just like, she's like, okay, let me find this. My desk is cleaner than that. It's still messy though, but it's, it's a complete mess. Like there's no organizational skills going on whatsoever. I was, I was honestly impressed.

1:05:10I thought it was a governmental agency based off of how the DMV is what it felt like. On my HOA, this was like two years ago. I saw the budget and I was blown away at how much they were spending on things that you could just get done for way cheaper. Like, I'll give you an example. We have a whole exercise room. They are leasing the equipment. And for the cost of the lease, you could just buy the equipment outright within six months. So why lease the equipment? And they say, well, it's for maintenance issues. But you could own all of it in six months of the cost of the lease. That doesn't make sense.

1:05:43And then I saw they do decorations on the front gate leading up and they put Christmas lights on some of these things. That was$12 ,000. I was like,$12 ,000? It's maybe$500 worth of Christmas lights and it's maybe two days worth of someone's time. How is that$12 ,000 to Christmas lights? The other one is that they have a roaming patrol car that goes around the entire neighborhood 24-7. The lease cost of that, you could just buy the car outright within about a year. Why lease it? And again, they say, well, it's for maintenance so that you know it's under warranty and it doesn't matter you own it outright you could just keep buying a new car every year for the same cost as leasing and you get to have an extra car left over so it's all these little things that like when you have a budget of all these you know hundreds of homes going together you know over i think it's just people are getting crazy bids because it's an hoa and they're like all right well let's just do it we have the cash for that yeah let's just do it all right that's fine no one's like sitting nickel and diming it's money.

1:06:44It's someone else's money. It's inefficient to sit there and be like, I'm going to get three bids and then I'm going to go and negotiate all these line by line. And it's easier to just charge$20 more per house, $50 more per house. And they don't know how either, right? Because most of them don't maybe even own real estate, except maybe the one that they're in. Well, our HOA is comprised of other homeowners. Oh. But there is an over-seeing management company on top of that. Is it a profitable HOA? No, I don't believe HOAs can be profitable. Like, there's going to be money left over in reserves.

1:07:16But they can pay the HOA, like, board members, correct? No. Uh-uh. No, they don't. Yeah. No, I did not know that. That's why you had such good service. That's interesting. They donate their time to do this. It's like you don't get paid to be on the HOA. You do it because you want to better the community. There's no way that my HOA office does not profit. There's no way. They maybe can deduct maybe like a salary or they can deduct an office space. They just have to deposit some of those checks. Yeah. But no one's making money. No one will notice. Charge me a few extra fees and whatnot. Yeah. I don't think they're making money.

1:07:52Okay. I don't think it's something that's like a profitable endeavor. Typically they're not. Or run an H.O. Right. Normally they're non-profit. But what they fail to do is the deferred maintenance piece, right? like the, you know, the CapEx, we call it, or capital improvements that, you know, what the normal HOA dues are supposed to cover are just your normal operating costs, like the landscaping and the water and the sewer and electric and that kind of stuff. But the buildings, the roofs, the parking lots, you know, all the stuff, maybe a big break in a water line or something, that's typically not covered in that monthly.

1:08:26That's called a reserve. And that's what most of them fail at and and then of course they're in a precarious situation too because they're your next your neighbor and they're like hey it's 100 more a month or 50 more a month and then you know then then you don't want to meet them out by the mailbox right yeah so you have that too i got a dude that surveillances houses and then you get an email that says hey we have a violation of course he'll just walk around and kind of like look and and see like if i have dead plants in front, he'll be like, just cite that. Oh, I've gotten cited for having a trash can by my, a trash can left out.

1:09:04That was a no-no. Can't do that. You know, it makes the neighborhood look nice and uniform, but it's like sometimes a little wiggle room here might be kind of nice. Yeah, I know. We had one where all the cars had to be in the garage every night. Now, I like cars like you, so that became a problem. You know, I had a four-car garage, but, you know, sometimes they spilled out, right? And I was getting notices all the time. So that's another one. And especially if somebody comes and spends a night, you know, well, let's say a family member and they're there for a week or something, I would get notices.

1:09:39What cars do you have? Right now, well, I have a 57 Porsche Speedster. I have a 458 Ferrari. And I've got a Range Rover. So just the three now. The Speedster is awesome. Yeah, great car. That is super cool. Phenomenal, yeah. Now, hosting for the holidays could feel very overwhelming, but getting your home ready shouldn't have to be. Our sponsor, Wayfair, helps you tackle everything in one place at prices that actually make sense. Guys, Wayfair is the place to shop for all things home-related. From sofas to spatulas, you name it, they have it, and it's on sale during Wayfair's Black Friday sale.

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1:13:01Couldn't recommend it more at shopify.com slash ICH. Thank you so much to Shopify for sponsoring this episode. What do you think of the 50-year mortgage? Do you think that that would benefit most people? Is that a good thing? Well, trading at Schwab is now powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos, and more, all curated just for traders. Plus, guided learning paths with content designed to fit your unique interests. No sifting to find exactly what you need so you can spend your time learning to trade brilliantly.

1:13:41Learn more at schwab.com slash trading. It's interesting. There are 50-year mortgages out there. Um, they're New Zealand, Japan, there, there are places that have them and there's pros and cons. Of course, um, I'm a proponent of getting people, uh, on, back on the affordability thing. Um, what it does is it lowers the payment, um, you know, and that is if you're using apples to apples, the same interest rates, let's say. Um, so there, there's a big, what if, but I'm, I'm, I'm a, I'm a proponent of, of, of getting people into houses. And if it's based on the monthly and their monthly, then I'm a proponent.

1:14:24Now, I don't like the fact that it's being kicked down the road past 30, you know, and I think, you know, the 30 was debated, I don't know if, you know, by Roosevelt back in the - What was it before the 30? I don't even know. It's called basically cash and short-term high interest debt. So before the 1930s, it was customary for people to either save up and buy a home in cash, or what they would do is take out a short-term loan that was, let's say, 6%. Yeah, like a hard money loan or something? Yeah, basically, like 6 % for five years. And the expectation is that by the time the loan comes due, you would either have the money to pay off the loan, or you would just get another loan.

1:15:02Was the house collateral for the loan? Correct. Yeah. But what happened is that in the 1920s Great Depression, people were losing their homes because they couldn't afford to pay back these loans. The government got involved because so many people were becoming homeless. And they started to develop the 30-year mortgage that was initially for new constructions, that you'd be able to buy a new house, get a 30-year mortgage. That was a success. And then they rolled it out to older homes as well. Yeah, but pushing a mortgage out just means in debt longer, right? So that's not good. But it also gets people in what I would consider to be a hard asset.

1:15:37But I believe that we're going to see inflation, you know, in the next 10 years, right? I mean, even the Fed, I think they're right around three. On their website, they say they're good with two. So even that is 20 to 30%, depending on how you pencil it. So I think if somebody can be in a hard asset, no matter what, I think that they're going to benefit from inflation. Yeah. The other thing I do want to mention, that going back to the 1930s to 50s, is that the average home size at the time was like 1 ,300 square feet. Yeah, small. My grandparents, they bought their house in West Los Angeles. They paid$36 ,000 for their house in the 1950s, but it was 1 ,100 square feet.

1:16:23Oh, wow. And that was for a family of five, by the way. It was them with three children and a three-bedroom, one-bathroom house, 1 ,100 square feet, five people. And now people want a 4 ,000-square-foot house. A starter home is like 2 ,800 square feet. That's probably even small for a starter. A starter home now is probably minimum 3 ,000 square feet. My mom still has the house I grew up in. Really? Yeah, yeah. They bought it for$10 ,700 in the late 50s. How big is it now? Oh, it's worth over 700. um you know and my mom was a hairdresser my dad was in construction and and um you know they paid it off like you know this before the you know dixon took the dollar off the gold standard right but uh things change after that but uh before then paying off your house meant something right and i i actually remember when they did it and um she still owns it today now did you not tell her to refinance at like two something percent yeah she could pull out some equity buy a wedge deal i know she's like what are you doing here's here's the here's the just this is very really interesting when my when my dad passed away i had the uncomfortable task and my brother and sister too to dig into their stuff right and we dug into their estate and my dad had bought and i remember him telling me this, he bought a$10 ,000 life insurance policy around in the 60s.

1:17:54So he had a 10 ,700 house and a$10 ,000 life insurance policy. So fast forward, this seven or eight years ago, I pull it out, the policy, 10 ,000. That's what it was. It wasn't inflation adjusted. and so he had a ten thousand dollar insurance policy and so um so i was talking to my friend about this and he said so basically the insurance policy was equal to the house at the time that's the way my dad thought right but that's what inflation did to that policy um obviously i'm taking care of my mom but she still owns the house and then she fell during covid and so we were in this weird situation where we had to help her and fix you know she she broke some bones and in her hip.

1:18:41And, and so what we did was we put her into a place where she wanted to go, an assisted place. And we rented her house to cover the cost. And so she is very happy because her home is actually paying for her care. And so that, that's how that worked out. But what do you think of the future is going to be with the dollar? Ah, that's a really, really, really good question. I've studied this a fair amount. Now, I don't think in my lifetime that we will see a change from the U.S. dollar because of the trust in anything else. So it boils down to trust. So dollar is only as good as, or currency is only good as, the trust in the currency.

1:19:30So if you look at BRICS or you look at, let's say, some of the other things like Bitcoin just in the last week or actually 10 days, it's gone down over 10 percent. So, you know, it's not there yet. Could it be? Yes, of course. But in my lifetime, I just don't see it changing. There's too much disruption to move to the peso or the euro or the renminbi or, you know, whatever country you want to pick. somebody has to be that central bank or there has to be something that everybody agrees on and the euro didn't didn't work yeah really what do you think of bitcoin i don't mind it i mean we own some my wife and i own some uh you know i'm not heavily into it uh but um i think it's a little volatile for me i i i um it's not i i don't know why it goes up and down other than hype um and so I look at it more like a stock and I know a lot of people probably aren't going to be happy with me saying that, but that's how I see it.

1:20:27Even though I have some, uh, you know, I'm not heavy into it. I, I, I, I, I'm diverse. So I have lots of different things. What's a piece of money advice that you would give yourself 30 years ago to be able to grow faster? Compound interest. I think it is an incredible thing. And I think leverage, low leverage. And, and I know you guys don't love leverage, but... I'm indifferent to it. Yeah. I don't mind. Yeah. But I think, you know, if you really look at the way money works is, and this really hit me once, you know, everybody works their butts off and puts their money into a bank. Well, that money becomes a problem for the bank.

1:21:07They owe you interest, period. It's an expense to them. So the bank's sitting there with your cash or an insurance policy or a pension or whatever, a retirement fund. somebody owes you something if it's your money. So what do they have to do? They have to repackage it and put it out somehow into, into some kind of loan or something, some kind of vehicle that makes money to pay you because they don't just pay you. The money doesn't come out of thin air. So, so when we're talking about other people's money, it's already there, you know, Wall Street, the whole reason for wall street is to is to reach in the pocket of main street and that's what they do they do it through the banking they do it through pensions they do it through insurance they do it through retirement plans um and and it is a way to take people out of um the education piece of finance you know which is why i love your show is you know you guys are trying to teach the stuff around that.

1:22:11And I think people need it. I really think people need it. That's the only reason I'm doing mine is for that reason. And so I would say to them, just look how money works. It's your money. Like, you know, if you're putting money away somewhere, like I'm borrowing from life insurance companies, I'm borrowing from pensions. I bought maybe three or four million of real estate in Texas using the RRSP or retirement savings plan out of Canada, that money. That's how Wall Street works is, you know, it all gets funneled. If it's a local loan, where does the money come from? It comes from, you know, the strength of the depositors.

1:22:57So, you know, it's all based on Main Street anyway. So I always tell people, you know, take a look at how money works. It's actually not, it's actually quite simple. What's the best investment you've ever made? So the best investment by far has been into myself, right? I, there's a lot of stuff I had to clean up from a kid, as I think a lot of people do. And, and I poured myself into personal development from the very first time I discovered it, which was in college. And I never stopped. And, you know, through books and podcasts and speaking and going to seminars and conventions and things like that, which I still do.

1:23:33I was just at a YPO convention last week in LA listening to Michael Milken and some other really, really cool people. So that's something that I always try to do is try to stay ahead of what's really going on right now with the markets, with the interest rates, with the financial markets, with tech, with crypto, all of those things. And so I always try to stay ahead of that. From a finance development, it definitely has to be 182 unit building that I bought. senior project that has hardly any turnover. I bought it for 9.7 million and it's worth maybe 40 today and we still own it. How did it go from 9.7 to 40 million dollars?

1:24:13Inflation. Inflation and rent growth and, you know, again, like, let's go back 15 years ago. What was the price of a house? It's the same question, right? So exact same question. Why did a house go from 200 to 400? So same thing. It's just, you know, with apartments, it's just math. It's literally math. I like that a lot. You know, I was just thinking that 50 plus communities are so nice. The people that move into them usually have the money that they just don't want to be bothered. But they have the cash flow. That to me seems like a really good opportunity. Like they never want to move. Right.

1:24:52And they just want stability and peace and quiet. They're gone half the time traveling. Can you discriminate, though, against age? Is that one of those things? So technically, though, if I wanted to move in a 50-plus community, could I? So the property that I'm talking about specifically is actually age-restricted by the covenants of the area. So it's Sun City, which is an area of Phoenix that a lot of seniors live in already. So it's already a community for seniors. And this apartment property is inside of that. So we are governed by that. And so they have to be 55 or older. But to your point, last year, we had 42 moveouts.

1:25:37That's not much. That's two, three, four a month. That's nothing. Compared to another 182-unit project, like in Vegas, we might see 150 move-outs. So the difference between 42 move-outs and 150 move-outs is significant because you have turnover costs, you have marketing costs, you have cleaning, you have maintenance, you have vacancy, all of that. But so finding communities that people want to live in and stay in long term, those are the ones that obviously I want to have. So could you not just go and buy a 50-unit apartment building in like a decent area and just say, hey, it's 55 plus? You probably could.

1:26:20Yeah, we haven't done that. But we bought four now in age-restricted areas. And seniors typically, it's been my experience. They like to hang out in senior communities. That's been my experience so far. So you could try it. But this area has like nine golf courses, three community centers, a bunch of pools. It does have an HOA. There are things that it has that they can enjoy inside the community itself, not just in the property. In the property, we have all that, too. We have pool, fitness center, all that kind of stuff. but they and then we also have a 20-person van with with a driver that drives them around to grocery stores and and um you know the hair getting their hair done or the doctor or whatever it might be so those are things that i want that they need that sounds so nice graham would want to live in an age restricted well you can buy one and then buy the one you want and then just make one car and then by the time by the time you move in you'll have the pet house and and you'll own a free and clear.

1:27:22It sounds nice. I was just thinking too, you could offer services of like cleaning, cooking services. We have all that. And, and actually beyond that, once, once, depending on their health, you know, we've seen some people are extremely healthy at 75, 80, 90 years old, very, very mobile and some aren't right. So you have to have, you know, those kinds of services available to them. What separates those people? Do you ever get down to the weeds and you see someone who's like 90? I've talked to so many of these people, by the way, they're just incredible yeah like they're they have such wisdom and you know they're present you know they're looking at you yeah it's the greatest thing but like the people who are 90 plus and really just like doing well active like what separates them how are they different i think it's a combination of a few things my mom by the way is 93 um and and i always ask her you know we go to this place and and and and she's like you know everyone thinks they're so old in here you You know, she thinks she's young.

1:28:18My mom thinks she's young. And I think that's it. I think the mindset is that, you know, they walk, they eat well, you know, they're healthy mentally and physically, you know, as much as they can be, right? What happens is they fall. You know, I've seen that happen a few times. And then that could be a bit of a game changer. Yeah, when we were talking to Dave Asprey, he was saying that the biggest thing for longevity and living a long time socializing and exercise. And that if you cut yourself off socially or you retire and you stop working, your cognitive ability goes down and then you stop socializing, you start getting out there, you start exercising, you stop exercising as much, then you're more prone to injury and then you're more likely to pass away from the injury.

1:29:07And so it seems like the more social you are, the more engaged you are with work, the longer you could live. Yeah. I'll tell you a fun story. My uncle, Dwayne, he passed away recently. He was in his 90s and he called me and he's like, hey, you got any 1031s? And I'm like, what? What are you talking about? He goes, I just got out of a deal. And he's in his 90s. And he's like, you have a deal? I need to roll this in. I'm trying to avoid tax. And I called his sons, you know, and I'm like, that's awesome. Like, your dad's still going at it. He's like, oh yeah, he gets up every day. He still manages his stuff.

1:29:44And, you know, he's still active. And he was that way, you know, right up to the time he passed in his 90s. And I think it just connected him to things. And, you know, to your point, community is everything. I had a buddy whose grandpa I really, really liked. He owned a very large block right off of Beverly Hills. All of the retail was his. And he was in his mid-90s. and he'd show up to the office every day to manage the buildings, even though there was really nothing to manage. But he would show up there. He would walk out and like find things to fix. And we'd be like, all right, we're going to repaint this.

1:30:23We're going to repaint this. And he said his favorite thing to do was he had a vending machine. And he would sit at the office watching the vending machine as people would go by and put a dollar in the vending machine. And this guy is probably worth like 200 million bucks. That's awesome. But the guy would put the dollar in the vending machine. he would see what the guy would get. And then he would come out to open up the vending machine to take the dollar and put it in his pocket. That's awesome. And apparently this guy also would go to restaurants and steal the silverware. And he just wanted to feel like he got one of the restaurants.

1:30:56That sounds like you. I wouldn't steal the silverware. Graham would not steal the silverware, but he always wants there to be an imbalance of value. Graham wants to be like, I feel like I got ahead. You know, I got away ahead from whatever trade direction. The most I've done, and I haven't done this in a while, but if I lose money at a casino and they've been serving me drinks, I'll just take the cup. Nice. Yeah, just because. Why would you? I do with the cup. Why would you? I drink from it. I still have my little coffee cup that I got, the little nice glass one that I fill up sometimes that's from...

1:31:28Really? I think that was from Red Rock Casino. Are you incriminating yourself? I don't care. I lost so much money. It's what? You've never lost a bunch of money. you maybe have lost 150, 200 bucks. It evens out in the long run. So sometimes I lose 300, sometimes I'll make 300. Whatever, you're shouting them out right now. So hopefully they got a couple dollars. Red Rock Casino worth of value. I got your top. It might've been Aria, by the way. I don't know. It's one of the casinos. You probably don't want him as a tenant, but what would be the worst investment you've ever made? A goldmine. Actually in Nevada, of all things.

1:31:59Yeah. I think as I was trying to diversify, this is going back a while. It was probably your age, actually. i i was trying to figure out oh i had money in the stock market i had some money in real estate and and you know i'm i'm trying to figure things out and i invested um into a gold mine that which just went poof and it you know they it just all went away like an hour or about a year later it was gone an hour later it was an hour later no it was about a year later i was gotten they just stopped communicating and the money was out and no email yeah basically could have been obviously what I should have done is I should have physically gone there, physically done the due diligence.

1:32:41It was, you know, through a buddy, right? You invest in this gold mine and, um, it wasn't a ton of money because back then I didn't have a ton of money, but I, it was a great lesson and it actually, um, you know, it can happen. And I, I've seen it in oil and gas. I've seen it in other things. Um, you know, that's, that's precisely why I like hard assets. It's like something physically I can touch. Even my gold and silver today, it's physical. I have actual gold coins with brinks. I keep it in at the brinks. And I've been buying since it was under a thousand. And now it's over four, but that's luck.

1:33:17I don't buy it for an investment. I buy it as a hedge against the US dollar, right? Yeah. That's why I buy it. How much real estate have you sold from your portfolio? I want to say it's probably close to a billion. a billion dollars worth of real estate that we've sold and would you have been better off just holding oh for sure for sure that's so interesting sometimes i look at those i'm like oh it's like it's like that place that yes i i i did i actually looked at a building today in vegas and i was just oh and and i did i had another one in portland that i that i sold and you know what happens is like a lot of us is you see the equity you want the equity right you think you need the money and sometimes you do need the money but um i i look back at some of those deals and i i just shake my head but do you think it's going to be the case in the future because you could make the argument that that is true because interest rates since the 70s have constantly just gone down at the same time as under building over decades and that's what's really led to this discrepancy yeah that's fair i i think you know if i if i just bought something let's say here today and came back in 10 years, I think it would be worth more because of inflation.

1:34:29And, you know, obviously that's not what I would do, but I think inflation is, you know, it's what made my mom go from$10 ,700 to over 700 ,000. You know, she's not a real estate investor, my mother. You know, she held real estate for a long period of time, paid it off, lived in it, raised a family in it, still owns it. you know there's nothing wrong with that my sister is a bookkeeper um and uh at the ever clinic which is where i grew up she did the same thing you know she she bought five rentals over a long period of time and you know now they're worth i don't know a few hundred few million i think you know a few hundred two three four five six hundred each probably um and you know it's far better than she would have done you know just trying to live off a bookkeeper salary Would you have been better off investing in the S &P 500?

1:35:23It's interesting. Yeah, I've looked at that. You know, the index funds, I would say that's obviously one of the bigger ones, most notable. I looked at, over 90 years, it's been 10%, I think, right? Seven, that's nominal though, 7 % adjusted for inflation, I think. So maybe, you know, the thing is, if I'm cashing that out, I'm paying tax on it as well. And in real estate, I can make more than 7 % and I can get it out. I can get my money out tax-free. So I get the tax benefits from real estate. I get leverage, of course. And I get the tenants pay my loans off and I get inflation. So I get all those things on the real estate side.

1:36:12So I think the index fund is easy, certainly. It doesn't take a lot of knowledge to do that. I'm certainly not averse to it at all. I do believe in diversification. And I'm heavy in real estate right now. See, it's interesting you talked about being better off not selling anything because I remember when I got into real estate, I would ask all these people that were buying multi-million dollar houses what their thoughts were on the market and their advice from me. And they always said, my biggest regret is selling this piece of real estate that I bought. And I wish I had just never sold anything.

1:36:49And I'm at a point now where I'm starting to sell off my rental properties because they're located in California for one. But also I don't want the headache, the liability, the management, the headache. And I'm looking at my income that I make from those rentals. And it's not bad, but I look at it in proportion to everything else. And I say, why bother when that's taking up 80 % of my mental stress for these things that just really don't yield anything else in comparison to what else I could do? You have to look at it that way. I agree, actually. I look at my equity against my return, no matter what I bought.

1:37:26So I call it imputed equity, whatever the equity is today. Obviously, it's gone down in the last few years. Apartments have, for sure. um so but i always look at that like what is you know how much money do i have sitting there and what is it making and what could i be doing with that then i calculate tax and all that kind of stuff in there so i'm not averse to that at all i'm continually we just did a a very very big five property it's called a recap so i took five properties that i've owned a while and we had a significant amount of equity in there. We actually pulled 77 million out of that, of those five.

1:38:09And I had refinanced them multiple times and I had a tax problem too. Cause if you sell it, you got a depreciation recapture and all that. So, so we did a 1031s into new assets. So it's basically taking 80s property, 80s and 90s property and rolling the equity tax-free into, into new stuff 2022 2021 2023 construction um less cash flow initially but i'm upgrading and what the reason i did that is because the the amount of equity sitting in those assets versus the return uh was was not what i thought i could do by by moving because again i'm looking at aging properties. An 80s property is 45 years old.

1:39:00And so you start to have these serious big things that happen from a CapEx standpoint in properties that you own for a long period of time. It starts to creep up. Things get older and it costs money. And so you start to take a look at that. And, and, um, you start to calculate, you know, where's this money best? How do I, how can I move it around? And that's all I'm doing right now. It's, it's like the end of a monopoly game, you know, when you're, you're just moving stuff around and that's essentially what I'm doing. And that's why I'm here. Actually, this is a, this is a 1031 exchange into this property.

1:39:36Um, that's what it is. Is there an ideal amount of money to have to do mostly whatever you want to do. And what do you think that number is? Outside of real estate? Sure. Just a good net worth to have. I think it's all excessive, honestly. I mean, you know, I think at some point, we brought on a full-time director of philanthropy and she works for us. She's on our payroll. Eight years ago, we started doubling down on that. You know, there is a point where you're like, okay, we have enough, right? And, and then the next question is, is how do you preserve what you have? Do you, should I grow it?

1:40:17Should I not grow it? Should I educate? You know, why do I do my YouTube channel? That's precisely why. So I'm having fun doing all that. You know, I think it depends on what different people believe their beliefs are, you know? So some people never stop, um you know and i think that's dangerous uh some people um you know stop too early and i think that could be dangerous you know i just heard a story the other day where um you know somebody stopped at five million dollars and they live in newport beach i said well that's gonna be maybe 10 years you know right okay well so there you go so five's too little it seems like a lot to me like you know so i think it also depends on what your expenses are and what you spend money on right you know i used to have a lot of cars and lots of houses and stuff like that and i i don't anymore right i'm like i i'm going the other way i'm paring down i'm simplifying now we've heard from other guests though that that say that you know with 10 million you could do pretty much whatever you want with 50 million you could get 98 of what a billionaire has access to just outside of like mega yachts and flying private i agree with that yeah i completely agree with that yeah yeah, yeah, I know the math.

1:41:28I mean, that's right. I mean, aside from, you know, those kinds of things, but the reality is, is I still rent those yachts. I, you know, I mean, it's just for a week or two and then you throw the keys and same thing, right? Like my wife and I, we just went down to Manhattan beach and, you know, rented a huge house on the beach for a couple of summers ago. There was a big check to write, but boom, done, move on. And so I don't have to own a$20 million our home, you know, when you can rent it for 60 days in the middle of summer. So, yeah. And, and part of that is, is, you know, I was getting to the point where it was a pain in the butt.

1:42:09Like you feel guilty, you buy something somewhere and you're like, I need to go use it. Right. So you go use it or then you have a whole team of people there watching it and all this crazy stuff. And it's just, it turns into nonsense. It's precise. I had nine cars at one time, same thing. You got to drive them. You got to run them. You need somebody to, you know, I mean, the batteries die. And, you know, there's all kinds of things that you realize as you start to get excess. And then there is a point of excess too. What was the biggest pain in the butt to maintain? The main house is all the houses.

1:42:44Yeah. Just the pains in the end. So with my properties, I have 300 employees. So I have maintenance guys. We have leasing people. We have managers. You know, we have really, really, really smart people running everything. I own the management company and the asset management company and the development company and the construction company. So we have four main companies. The ones that were paying the butts are the single house over here that I owned that I had nobody, right? Because then I had to find somebody that I didn't trust or know yet maybe or, you know, in some remote area. and you know you're trying to cobble that together like the landscapers or the maintenance people and you're not there you got to fly out there and so so there's all these things um that um that you have so there's that and then we would show up sometimes i had a big home on a lake and uh lake coerter lane up in idaho right downtown i would get up there and it'd be two to three weeks of meeting with all those folks to try to get it back to you know stable you know whatever just stuff from the winter or whatever it was.

1:43:52And we've lived in the house for a month or two. And then, um, and, and finally my wife's like, you know, like, you know, half your time is bent on the maintenance of this house. So, so, so I said, you're right. So started cutting back on all that stuff. What net worth do you have to have or that you should have to buy a$10 million house? I, well, a lot of it depends on your cashflow. So if you have no, if you, if you're, and I will get there. You can be an extremely high compensated person in a tech business with a lot of equity on paper and buy a house like that, as long as you have the income coming in.

1:44:30Same thing with surgeons or whatever. But if you're going to retire on something like that, it depends on your age. But I think you need easily, you know, 30, 40 billion would be probably comfortable for me. And that, you know, I don't have debt on anything personal. That's the interesting thing. All my cars and houses and anything that I have is paid off. Boats, all that stuff, it's all paid off. I was always under the assumption that the house should be one fifth of whatever net worth should be. So if you buy a$10 million house, you should be worth or have liquid assets, 50 total. We're talking to someone recently who is saying that a lot of people will stretch.

1:45:10They'll max out whatever they could buy and their net worth could be way less. than something like that but they get in because you know they afford it every month but they're one paycheck away yeah that's really dangerous yeah extremely dangerous yeah i don't agree with that at all i you know if if you have significant cash flow coming in and it's consistent so as an example all the properties i own pay my management company every month so i'm the general partner and I own the management company. So I pay myself. That's how that works. So that company does three, 400 grand a month. Then I have an asset management company, same thing.

1:45:54So the assets I own pay the, so I have a guaranteed stream of income coming in from assets that I already own indirectly. Plus I get distributions from them too, right? And cashflow itself. but somebody has to manage it. And so the management company does. And so when you have certainty in something like that, then I think buying something like that where the payment might be 20, 30, 40,$50 ,000 a month, which is about what it is, is not a problem. Again, it depends on the cashflow, but if you're like what you described, I think that's risky. Does money buy happiness? No, God, no. Not even close.

1:46:41Not at all. Have you found, though, that your life satisfaction has increased the more money you make? No, it's gotten more complicated. For sure. For sure. The more money you make, the more complicated it is. Then why, keep going, why not scale back to a point where it's just the ultimate balance? Yeah, well, so because I don't equate money to happiness, I equate money to time. That's it. So time is the reason I do this. So time is super important. Time with my kids, time coming here, you know, time away, time with my wife. I'm here in Vegas with my wife. That's really where it's at. So if you have money coming in, then, you know, then that's what you use it for.

1:47:30And why do people have money but don't feel wealthy? Like this guy. Like Graham. Yeah. Well, I think it's interesting. It's a phenomenal question. I go back to mindset, I think. This episode is brought to you by Palmolive. Family time isn't just the big moments. It's weeknight dinners, sitting around the table, everyone talking all at once. So when the plates are empty and the sink is full, use Palmolive Ultra. Palmolive's most powerful formula removes up to 99.9 % of grease, leaving your dishes sparkling clean. And the new convenient pump makes cleaning even easier, so you can spend less time tackling dishes and more time together.

1:48:13Shop now at palmolive.com. Hey, I just Venmo'd you for rent. Nice. Now I can instantly spend it whether I'm checking out online with Venmo or using the Venmo debit card. Say more. More exactly, because the more you do with Venmo, the more you get. like earning up to 5 % cash back with Venmo Stash on a bundle of brands. So, order more pizza. The math demands it. Get the Venmo debit card. Venmo Stash bundle terms and exclusions apply. See terms at Venmo.me slash stash terms. Venmo checkout not available at all merchants. Venmo MasterCard is issued by the Bancorp Bank N.A. I remember as a kid, we would be checking out somewhere.

1:48:50My parents and my mom would say, we can't afford that. And it was true. You know, they couldn't, right? They're good people. don't get me wrong um but you know we shopped at their stores and that you know that we a lot of our stuff that's what we did um so so how so you break through you have to break through the mindset that mindset right i had to um and now of course i want to like what is risk you know what is risk really is it to me it's predictability and that's why i get freaked out a little bit with stocks and crypto is I feel like I, because I understand the management, I understand I can predict to a large degree the direction of an asset, especially if I buy it correctly.

1:49:40So, so, so getting back to the money and the mindset, I think that it's a belief system. The belief system creates the mindset for sure. It's, it's how you think. And then from there, it's habits and routine, right? Is there any dark side of success that people don't talk about? Oh, health, I would say, is a big one. Mental health, physical health, for sure. What have you seen? Oh, all kinds of bad things. Like, I mean, I think, well, money, money makes people have big egos. They think it's money. Like somehow they think, look at this. I've, I've made it. And all of a sudden they're better than someone else.

1:50:26I see that a lot. Doesn't really mean, you don't have to be really wealthy for that. I usually see it in the first time. Like I see it in young people. You know, a lot of young people, they make something real quickly and then all of a sudden they feel like they're better. The problem is it goes away pretty quickly unless they can sustain that. But on the dark side, to answer your question, so ego oftentimes um doesn't allow you to shut off the health and the mental piece so like what's what's most important if you were to ask me what success is i would say that it's family and health period right and those are inter-switchable at times but i would say without your health you got nothing so i see there was a time i went to um in my ypo i went to a talk where a guy owned a series of these health spas like these you know and it was pretty big and he was putting them on cruise ships and it was a real big brand and um he would say this is this really hit me he said the ceos will roll in here extremely unhealthy big guts poor health can't even walk up a hill and they come here for a week and they want me to fix them.

1:51:48And it kind of summarizes everything. I think what happens is people prioritize money over relationships and health. And I think that's a huge danger. Do you ever get people just asking you for money? Oh yeah, of course. All the time. All the time. I have a rule and yeah, I give money out. What's the rule? It's really simple. I got this from my good friend who started California Closets. um and when he exited you know we were talking one day and he's like this is my rule i go that's a great rule so if somebody comes and says hey i need i don't know usually it's a low number right right he's like always take it always take the first one and say listen it's not a loan it's a one-time gift so you give them the money and you don't have to pay it back but you can't ask a second time.

1:52:42So that's worked. Can I have$50 ,000? Yeah. One time. Deal. No, no, no, no, no, no, no. What do you mean no? One time. No. It's one time. It's a gift. No, no. It's a gift. You didn't ask first. I'll take 51. No, I wouldn't. No. But that's it. That's it. It's simple. And so have people ever came back to you after you gave them that first time? Very rare. But because I give them the release, like, you know, I listen, if they need it, I'm good with it. Like, you know, if they're if they're friends and depends on what they want it for. I do ask. So I am curious, though, if everything you do is to get back time, the purpose of money is time.

1:53:24Aren't you at the place now where you don't have to pursue money anymore and you have enough to be able to do whatever you want with your time? Yeah, yeah. But see, now what I have a great question now. you know but i i got my company on autopilot like i don't have an office in the office you're here in vegas yeah i'm having this place out i know well you got a free water well it's here's why again it's it's i'm managing my money right it's it's coming out of a 1031 so do i want i definitely want to see where it's going right it's moving into a new asset so that's worth a trip uh you know and uh we're going to get to come to vegas and we're going to a show tonight so what are you seeing um i don't know what are we comedy yeah comedy how much do you work 10 to 20 a week a lot on the youtube actually probably half of that is youtube i know because i'm trying to figure it out like it's so bizarre to me it's fun yeah uh i i'm enjoying that piece a lot your youtube video is really good i found you a while ago when you made a video about having f you money yeah i remember seeing that i'm really enjoying it thanks yeah yeah i wish i could say it was my idea but um i had a youngster that and said this is a great video we should do it we did it i'm on my uh on my jet yep yeah i remember seeing that and i loved it yeah it was really well put together when did you realize you had fu money and what is fu money well i have a really good friend that took his company public and i was playing golf with him a couple months ago and he's like i can't spend what I have.

1:55:00And I think that's it. You know, you can't like you get to that point where there's so much cashflow coming in. You got so many assets that, you know, it's basically going to transfer to someone. So when did you realize you had that? Um, over 10 years ago. And did anything in your lifestyle change because of that realization? No, the only thing that changed is I, I figured out my trusts for my kids, right? And I want to make sure that they're taken care of. I did buy a jet because I'm flying around. And, you know, I like a flu today, you know, to check these out. And I actually, it's nice. It's nice to, you know, pop in somewhere and fly back.

1:55:50We'll fly back in the morning. How much was the jet? How much does that cost to run? Yeah, was it? It costs us about$400 a year-ish. To operate it? Yeah. And how much was it to purchase? We paid about$3 million for it. That's not bad. No. It's a Phenom 100. And that's hangar, pilot, fuel, everything. By the way, my partner and I own it together. So you split it? Yeah. So call it$20 ,000 a month each. That's really not bad at all. How far can you go in it? It's a, we fly to, it's like 1 ,200 nautical miles, I believe. So we can fly to Dallas. We fly to Houston. And so sometimes what I do is we'll fly somewhere, land in the morning in Austin, let's say.

1:56:41And while the car picks up, we'll go look at four or five of our projects. And then we'll literally be heading back at three, four o 'clock that afternoon. That would save us so much time. I mean, the travel that we do, we spend an extra day getting somewhere because we know that we have to book on these times and we finish the podcast. There's not a good flight. And then we have to wait a few. It's a dream. It's time. That's what I'm saying. Literally, you start to think of these things like, you know, what is time worth? So when can you buy a private jet? How do you know you're ready? When you have the cash flow coming in.

1:57:14So we have cash flow coming in on all our businesses and I wanted to make sure. So I, like you, don't like to take, I don't like to dip from my nest egg, right? I want there to be enough cash flow to be able to pay for whatever I'm going to do next. I very rarely take chips off the table. I'm usually, at this point, moving money around from asset to asset. So that's the same thing that Graham kind of does and I try to do, which is however much money your investments make, that's the amount of money that you can spend as opposed to like your active income, the active income. Yeah, this, I never count any of this as income because I've seen it disappear so quickly.

1:57:54So this is just store as much of it as possible and then spend maximum 4 % of what your investment portfolio is. Yeah, so I'm very similar, believe it or not. It's just that we have so much coming in now because of our assets. So what are the best things to spend your money on? The highest ROI, not necessarily from an investment perspective, but just from a quality of life. Yeah, I think naturopath, your blood work. I'm on a cleanse right now like literally really yeah in the middle of one it's a 10 day one so it's not that far but I've done 21 days certainly anything health related gym for sure relationship stuff I just took my kids two weeks ago I did a big fundraiser for the Navy SEALs in San Diego Coronado we raised 300 million or 300 million 300 ,000 for them beyond the brotherhood great organization I brought my kids.

1:58:47We did some Navy SEAL training. So those kinds of things. Like, where can I take my kids? I'm taking them to Mexico soon. How old are they? They're in their 20s. Yeah, they both work for me too. So it's very exciting. Not directly. Do you feel like you need to overpay your children? I don't even know what they make. Like, I swear. They're paid market, whatever that is. So there's no nepotism involved here. They're just getting paid market. I... Do you think nepotism is a bad thing? It can be. It can be harmful to the culture. So, yes, I mean, obviously parents love their kids and they want them to work with them a lot of times.

1:59:28But sometimes they're, you know, if they're rubbing shoulders with, you know, a C-suite person or somebody, a director or a manager of a department and they're not capable, then for sure the culture gets pulled down. Was there intent and purpose behind the way you raised your kids to make sure they wouldn't become the person to rub shoulders with a C-suite or executive? Well, they're on different paths, but I will tell you how I started. I started with barter. I never, I've never given my kids money or allowances or anything. So I always started with, okay, like you guys can figure out how to make money.

2:00:09And so we started with barter. So really simply, I belong to a golf club up in Idaho and, um, they used to get, we used to go out and get golf balls at night. Now it doesn't seem like much, but when you're six and eight years old, um, you know, they would make a thousand dollars a summer. Right. And then I would take half of that money and I stick it in a jar and I said, okay, you can spend half, but we're going to take half. now you need to decide what's the next business and then they would go on youtube and go figure stuff out the next business was duct tape wallets i was like okay great so we take them to home depot and there were lessons in all these things okay how much is the tape how much is the cutter how much is this how much is that okay so you need to sell 10 wallets to get this back and so there's and then then the next thing is we actually created a website for them called createyourowntune.com.

2:00:59And so by the time they got in high school and college, they were buying stuff on eBay, selling it. They were doing things for money. My son was repairing iPhone screens back when you could and making whatever. And so by the time they, and by the way, that's not all foolproof either, but by the time they got to the company, you know, they just appreciated things because they weren't giving them. That's interesting. I resonate with that as well. Because when I was growing up, I didn't have an allowance. When I finally did get one, it was only achievable through a bunch of chores throughout the house.

2:01:40So I kind of had to earn it. It wasn't anything that was necessarily gifted to me. And I remember the only other job I could have was I could pick up palm fronds. When wind would blow, it would blow these long skinny palm fronds onto our front lawn. And for every palm frond, I lifted up and threw away. I got one penny. Oh, one penny. And you can confirm with my dad next time you see me. It was one penny. How old were you? Like 13? Oh, like I literally, this was like one of the only ways I could make money. So I would do this as long as I could. You would make more just picking up change off the street?

2:02:15Well, it was annoying because I had to like count them too. And so I would be able to pick up a couple hundred though. So I get like two or four dollars, maybe max. They were not huge. They were like skinny and long. But yeah. And that actually - The lesson though. The lesson was the value and importance of money. And hard work. And how money can only be achieved through work. And it worked, obviously. Look at you. Did, thank you. Seriously. Thank you. Your dad raised a good kid. Thanks. And this guy will sometime soon. Isn't that right, buddy? One day. So, okay. That's it. Thank you so much for coming on the Ice Coffee Hour.

2:02:49That was a great conversation. Yeah, I really enjoyed this. Appreciate it. Yeah, thank you. Yeah, we'd love to have you back on at some point again in the future. I'm sure everyone watching would like to have you back on like a year from now. Yeah, yeah. When cap rates change by another percent, we'll make another$500 million. I don't know, I don't know. You know, more charities, right? So we'll see. Thanks so much for coming on the show. My pleasure. Thank you guys so much for watching. And you may notice the shot looks a little bit different. We're filming in a new location. Yeah. We still haven't really revealed much about this, except to the members, if you want to join the members down below.

2:03:20Yes. Oh, you know what? For the members, if you join, you're going to see a full office tour. We haven't done it since. Should we do a new one? Yeah, let's do a new one. We'll do a new one. Just so you guys get behind the scenes content. But also, thanks for coming on. Thank you guys for watching. We're only able to do this because of you. So this warehouse is because of you guys. We could not thank you more. Thank you for watching. Till next time. See ya.

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