Get Rich Education

Keith speaks with investor and The 80/20 Principle author Richard Koch about the strategy and decisions behind building wealth. They examine how Koch's "star business" framework (combining market growth with competitive strength) can inform real estate investing, from choosing markets to recognizing emerging niches such as luxury senior living. The conversation also explores the attitudes Koch associates with exceptional success, including self-belief, resilience, and developing intuition through experience. Richard discusses how beliefs can shape financial choices and the themes behind his book 80/20 Beliefs. Episode Page: GetRichEducation.com/628 For access to properties or free help with a GRE Investment Coach, start here: GREmarketplace.com GRE Free Investment Coaching: GREinvestmentcoach.com Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: [email protected] Invest with Freedom Family Investments. For predictable 10-12% quarterly returns, visit FreedomFamilyInvestments.com/GRE or text FAMILY to 66866 Build your real estate portfolio with cash-flowing, fully renovated rental properties from Mid South Home Buyers: https://www.midsouthhomebuyers.com/ Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review" For advertising inquiries, visit: GetRichEducation.com/ad Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— GREletter.com Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Complete episode transcript: Keith Weinhold 0:01 Welcome to GRE. I'm your host Keith Weinhold, the best-selling author of the 80/20 principle, is also an investor with a reported billion-dollar fortune. He joins us today, tells us how he built his wealth, and he's got plenty of insights on real estate today on Get Rich Education. 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Speaker 1 1:31 You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education. Keith Weinhold 1:47 Welcome to GRE, from the home of the Patriots, Gillette Stadium in Foxborough, Massachusetts, to Gillette, Wyoming, and across 188 nations worldwide. I'm Keith Weinhold, and you are listening to Get Rich Education. Wouldn't it be interesting to see how real estate investing looks through the eyes of a prominent billionaire, especially when he's the author of the landmark book, The 80/20 Principle? That's what we're doing today. When he talks, people listen. Richard Koch will join us shortly from Portugal. He and I talked beforehand outside of this interview, and he told me Keith just simply asked me how did you get rich. I'm gonna be okay with that, so that's exactly what I'll do because he's really open about sharing, and as a show host, I love that, and I think that you will too. But we won't go for his ATM pin or his Netflix password. Only everything else. In his books, just like a lot of other successful books, there are several sequel works to his original 8020 principle book. He challenges the idea that outstanding success even requires Genius, consistency, or even basic competence-that those things are not necessary for success. You're going to learn what success requires instead, and you can see the 80-20 principle in a lot of places in your life. 20% of your clothing is worn 80% of the time. 20% of your phone apps take 80% of your screen time. 20% of your advertising generates 80% of your quality tenant leads, and I'm thinking that 20% of your tenants generate 80% of your problems. You're also going to get the architecture of how to become a billionaire. Keith Weinhold 3:43 Now, Richard often talks about what he calls a star business, and that really means two things. A star business is the business that is the largest player in its market or niche, and that market is growing at least 10% annually. That's a star business, and we'll learn how to apply this to real estate, including apartment investing in London and elsewhere. Besides an author, he's a passionate investor and has plenty to say about real estate. This week's guest is the author of the mega popular book that sold over a million copies, The 80/20 Principle. In fact, GQ named it as one of the top 25 business books of all time. This is known as the Pareto principle. You might have heard of it, where 20% of your effort yields 80% of your results, and he since authored other popular books. Much of his life has been focused on investing. Oh, it's a warm Get Rich Education welcome to Richard Koch. Richard Koch 4:54 Thanks very much indeed, Keith. Very kind of you to give me that great introduction. That's fine. Keith Weinhold 5:00 Well, you're here on Get Rich Education. Tell us, how did you get rich? Richard Koch 5:05 Well, let me just go through a little bit of biography here. I came from a pretty lower middle class background in England. I went to Oxford University when I was 18 and finished when I was 21, I then took a variety of jobs, but left them to go and do a business degree at Wharton in Philadelphia, from which I learned nothing apart from probability theory, which was a very very minor part of the course in macroeconomics, the only course win which I didn't do very well, but I learned about probability, which I think is very very essential for any investor. Yeah, and it's not difficult. You can learn about that in probably about two or three hours at the very most. And then after that, I worked for I had yes absolutely. I then worked for the Boston Consulting Group for four years, and that was very fortunate because their theory of how you get rich is something I'm going to talk about. It is relevant to real estate investing. It's relevant to all investing, but we'll come on to that a little bit later on. And then they fired me, which was great because I wasn't very good at doing what they were particularly good at doing, which was heavy-duty quantitative analysis. I'm not a terrific numbers person. And then I got a job at Bain and Company, which was a an offshoot from Boston Consulting Group, as you probably know. Yeah, and they were much more my cup of tea because they were interested in how to make companies successful. BCG, which is a wonderful company, was interested in getting the best possible strategy for any business using quantitative analysis, which really boiled down to trying to make the costs as low as possible for their clients and their prices as high as possible. Richard Koch 7:04 That was sort of their objective, and trying to get a dominant market share in the most important businesses that they were in. The star business would also be one which is very high growth, and that's the formula which I have used and which I think is relevant for all investing. But how I got rich is generically possible for anybody. I think the origin of how I got rich was that I worked for 13 years in relatively high-paid jobs, and I saved a lot of money. I was helped by the fact that I didn't get married, partly because I'm gay. But anyway, whatever. By the age of 33, I had net assets of 250,000 pounds, which at that time I suppose would be about $300,000. I guess I then was the co-founder of another strategy consulting firm called Lek. I was the K in Le K, and in order to make sure that we had plenty of cash before we got clients, we all contributed a certain amount of money into the pot, and my share of that was 250,000 pounds, which was savings from all those years in the salt mines of working for other people. When I left L.E.k6. years later, that had grown to I took out 6 million pounds before tax or 4 million pounds after tax because we grew 100% a year. We were very profitable, and although I say so myself, we did very very good work. So there I was. I left ELK. Had no idea what to do. I hit upon doing two different things. One was I just started writing books because I'd always wanted to write books, and the second thing I started was making venture capital investments. Richard Koch 8:56 And the first 250,000 pounds had turned into 4 million pounds after tax, and then over the next few years, over the next two and a half decades, I invested the money firstly in one company, and then in another, and then in another. And every time the investment size went up, and the reason for that was I had more cash, because all of those investments were very successful, and they were all star businesses, which I will come onto in a minute. So by the end of 2014, that 250,000 pounds had turned into, and I can remember this because the number is easy to remember: 543 543 million pounds. Keith Weinhold 9:44 Wow! Richard Koch 9:45 So I was sort of like a half billionaire in sterling, but it was simply from making successful investment and then doing the same thing again with a larger capital base. So that I think is the first thing, which I think is genetic. But anybody can do that, but in order to do that, you have to be able to make investments which are going to be successful, which is not easy. But there is a method for doing that. I'm allowing you to ask a question, and I can just carry on and and tell you what the investment method is. Keith Weinhold 10:17 Well, that's an extraordinary amount of success, and yes, we're certainly interested in what that method is, and if that method includes having a substantial amount of capital to start with. So, tell us more about that. Richard Koch 10:31 Yes, I mean this is a method which can be used for any amount of capital. Actually, you don't have to have $250,000 or pounds or whatever currency you have, you do have to have some capital, obviously. So you know you could start with $50,000. I think that's probably about the minimum. Well, the Boston Consulting Group theory, which Bruce Henderson devised from taking all these huge tomes about corporate strategy and reducing it to one chart is a famous chart which has cash cows, question marks, dogs, and vegetable stars. And the idea is you do a two by two matrix. You have low growth on one side, high growth on there. And being perverse, Boston Consulting Group decided to put the businesses which had the highest relative market share on the left rather than on the right, and those were the star businesses. So, a star business, which is the objective, is one which is in a very high growth market and also has a dominant market share. So, it has a very large share of its particular market. Now, trying to apply that to real estate is not too difficult, because part of the secret any real estate investment has to be the growth rate of the market. If you had invested in the 1950s in the fastest growing states in America, which were Texas and California. You could not fail to make a huge return from that. Yeah. Well, many people go into making investments, whether they're in venture capital or in real estate, without contemplating the market growth rate. And I was guilty of that because one of the investments was I made once, which was not one of my most successful investments, was actually in real estate in a company in London, in West London, place called Ealing. And some friends of mine brought me a proposition which said, "Hey, we're doing really successfully. We're making an awful lot of money here, and what we're doing is taking over Victorian buildings from the 19 th late 19 th century, and we're turning these huge places into apartments, and there was a shortage of apartments in West London and London as a whole, and so this was quite a successful strategy. However, after about three years of very good profits, during which I'd invested a total of 30 million pounds, the profit started to evaporate, and what had happened was that the cycle had changed, and basically there were no more large Victorian buildings to take over. Richard Koch 13:17 I had interpreted as very profitable business, really wasn't, because it was all stock profit. In other words, the general price level was going up in earling, but it was not because we were fantastic at converting property into smaller units of property, which then made a lot of money. So it was essentially all stock profit, and once I realized, oh dear, I've made all this investment, and then to cut a long story short, after putting in 30 million pounds, I took out 15 million pounds. So I actually lost money on that investment, but that was quite interesting. And then I thought to myself, well, why, why did this happen? And it happened because the growth rate in Ely had slowed, because basically the the market had been very hot, and then it basically went cold. So, in terms of thinking about whether a market is growing or not, you have to think about it over a longer time horizon. Certainly, for I'm sure you know this more than I do. You know, certainly you need to think about things from a 10-year or longer perspective, rather than a very short-term perspective. But nevertheless, it is true that the star principle holds. You really want to invest in a very high-growth market. Now, that doesn't necessarily have to be a state; it could be a very localized neighborhood, which is growing very, very fast for particular reasons, or it could be a particular type of building, you know, a condominium, any kind of business. But you have to be sure that the way that you're segmenting and the investment you're making is actually in a very high-growth market. And that's happened in the Algarve, where I am in Portugal. You know, this Portugal has become a very, very popular destination for foreigners, particularly rich foreigners, and particularly actually rich Americans. And so, the real estate market around here has been quite hot. Richard Koch 15:16 And I have made successful investments on the west coast of Portugal in real estate now, so I've canceled out the losses which I've made, but only because the market is growing very, very fast. So that's the first rule I think. What about the dominance rule? Says you need a high relative market share. I don't really know, to be perfectly honest with you. I don't know how to apply that property, but what it means is for me when I decided to make an investment in a place called Porto Covo, which is a beautiful, beautiful port city on the west coast of Portugal, between the bottom bit where I live and the Algarve and Lisbon. This particular place had got fantastic beaches, but it was relatively small. And then we heard that there were rumors of other people making investments. A four-star hotel opened, and then two five-star hotels opened. And now Nvidia is making a big business center near there, and so on and so forth. So it looked as going to be this particular enclave, this particular town, not Portugal as a whole, not even the Alentejo, which is the area within Portugal that it is, but Porto Coburg itself would be a successful investment. Richard Koch 16:35 So, the definition of the market is hugely important. The other thing is, we didn't take small blocks of land. We got the two biggest blocks of land in Porto Cova, and so we were able to make you know quite successful. I don't exaggerate the return from it. It's probably been an annualized rate of 15 to 20% but when you consider that the risk in real estate, is certainly much lower than in venture capital because land can never go bust. It's always going to be worth something. Then I think 15 to 20% is a reasonable rate of return. Keith Weinhold 17:14 Well, there's a lot there. You know, as we say here at Get River Education, the market is often more important than the property. A palatial estate in the middle of nowhere doesn't have a very high value, but even a tiny studio apartment in Manhattan, where you almost have to sleep in a closet, that can actually bring a good rent. The market is more important than the property, and you touched on something really interesting when it comes to market research and where we think dollars are going and where we think that places are uptrending. You talked about resort development in one of the areas you looked at in investing in. When we see resort or hotel money or a lot of other business money come into a place, us as individual investors, I kind of think of it, Richard, as we get to leverage their research. You know, they've done a good bit of research and demographic analysis to make a decision to invest, say, hundreds of millions of dollars into an area. We can leverage that ourselves. Richard Koch 18:15 Yes, and another segment which I think is particularly interesting is luxury places for older people, and certainly in Portugal, that has been very, very successful. And in fact, it's quite segmented, Keith, because it segments by nationality. You find that, for example, a bunch of Swedish people around here decided to get together, rich, fairly rich, we're not mega rich, but fairly rich, Swedish people who had I don't know, were able to make an investment of approximately $10 million plus retirement homes for those people in a very attractive location. I haven't made that investment, but turned out to be very successful, and the idea of a a luxury retirement home. Yeah, it used to be an oxymoron. The retirement homes are horrible places, but actually, retirement homes for really rich people, and particularly people who are interested in remaining fit. So there's got to be a big swimming pool. There's got to be a big gym. There's got to be big facilities. There's going to be all kinds of social things going on. That is a segment which I think is particularly interesting if it's growing very fast and if you're the first person to find it. Keith Weinhold 19:30 That's a smart thing to say because oftentimes when we think about market, we think about geography, but you're talking about a use type in the trend in senior living. You're listening to Get Rich Education. We've been talking with 80/20 principle author Richard Cush about real estate. More when we come back, including the 80/20 principle and interesting things from one of his more recent books, Unreasonable Success. I'm your host, Keith Weinhold. Let me ask you something: If you've worked hard to build. Wealth is your money positioned to actually support your goals. A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. Keith Weinhold 20:25 In full disclosure, I'm an investor myself. 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Hal Elrod 21:31 This is Hal Elrod, author of The Miracle Morning, and listen to Get It Rich Education with Keith Weinhold and Don't Quit Your Daydream. Keith Weinhold 21:45 Welcome back to Get Rich Education. I'm your host Keith Wine, who we're talking with 80/20 principle author Richard Cush, also known as the Pareto principle, where 20% of your effort yields 80% of your results. And Richard has been telling us about where to focus your time and energy in order to get those results, and Richard, one of your popular books is called Unreasonable Success. I found it so interesting that you challenge this idea that extraordinary success requires genius, consistency, all-round ability, or even basic competence, and now I would think that those things do matter. But instead, you identify nine key attitudes and strategies. So, tell us about those and what makes those important for an investor. Richard Koch 22:35 Yeah, I don't believe that people are successful because they are necessarily brilliant or much cleverer than other people. I think it's more a matter of personal psychology and the attitude which people have. I know a lot of rich people who are not very bright. I'm one of them, and honestly, it's much more important to know what was successful. My research actually looked at 20 people who were very very successful, but were not necessarily absolutely brilliant. In fact, they include Winston Churchill, who was a total failure throughout most of his life. But he did one thing which really made him successful, and thank God he did. Which was in the 1930 s, he decided that Hitler was a menace, and that Hitler had to be stopped, and that he was going to be the person to do that. Now he'd been very unsuccessful as a politician. He'd been rejected by the Conservative Party, that who's a member of. He was someone who drank a lot. You know, he was not highly respected, but he made it his mission to point out the danger that Hitler represented, and in 1940, when Britain was about to be invaded, he was the only possible selection as prime minister. So I tried to identify what it was that he and other people who had been very successful had, and the first one of those is self belief, and I think this is actually the most important one. Yeah, self belief, and this is not peculiar to real estate investing. It's actually common to all forms of investing and all forms of success. If you don't really believe in yourself, then you're probably not going to go anywhere. And that self belief doesn't have to be rational. In many cases, it can be completely irrational. So, in the case of Winston Churchill, he always thought that he was going to be prime minister, and that was because he'd been brought up by a father, having a father called Randolph Churchill, who had been the finance minister, Chancellor of Exchequer in British speech, back in the 1880s, and he had had dinner with current and future prime ministers when he was in his youth, and so he naturally thought he was part of the ruling class and that he would be successful. He then had a long period of failure of success, but he never. Stop believing himself. He never stopped believing that somehow he would become prime minister, and he did become prime minister. So, I think it's very important to be generous to yourself, and you know certainly almost to the stage of being delusional. Richard Koch 25:14 Self belief, I think, is important for real estate investor, indeed for all investors. And then the second thing in the picture there is Olympian expectations, which means being ultra ambitious. You know, sort of saying, I don't want to be a moderate success. I want to be a fantastic success. And how am I going to be able to to do that? And I think that's very important for real estate as well. I mean, we could think about a president of the United States that that applies to where he'd always been super ambitious and rarely been super competent. The third thing, and I think this is very important for everyone, and also for real estate investors, is to have a transforming experience, and that is usually going to work for someone or for a company where you are part of a company which knows something that nobody else knows, and that was true for the Boston Consulting Group. In my case, they knew about business strategy that no one else knew about. It's true for Bain and Company, which knew how to make companies more successful by having a long-term consulting relationship with them, it was true for almost any very very successful person that they had a period of time in their life when they learnt something that other people didn't know, and so I don't know if there are real estate companies that you would recommend going to work for. They're probably the best ones are ones that nobody else knows about, but people who found the focus, which has been very, very successful. Keith Weinhold 26:44 I'm glad you mentioned focus because a focused fool can outwork a distracted genius. Richard Koch 26:49 Indeed, that's true. I think there are two other of the nine things which are most important. One is to thrive on setbacks. You know, real estate investing, like most investing, is a cyclical business. I think you'd agree. Yeah. So part of your success is going to be whether you're in the right part of the cycle. And what you should be able to reckon with is that some stage you're going to, yeah, have a bad year. You're going to have a bad two years or bad three years, or whatever, but you have to be resilient, and being resilient is partly a matter of having a fairly secure capital base. So, whereas I was recommending earlier that you basically double up and then double up and then double up again, I think you have to be very cautious of that in real estate investing, and you need to have a buffer or a cushion, which means that you, you know, if the market goes down, you're not crucified. And then the last thing I draw attention to is acquire unique intuition. It's very difficult to describe exactly what intuition is, but it's the ability to differentiate when you can trust a person, when you can trust a market, when you can trust yourself is very important to have the intuition that says, actually, I know the difference between a bulleter and someone who's actually the real deal. Richard Koch 28:17 You know, it's very important to know that you actually can judge whether something is a good investment or not, and the only way that you can require that is through practice and through making a few mistakes and then analyzing mistakes that you've made. But saying, when I invest, I'm going to have a formula that nobody else has because I've got the intuition that that's going to be very successful, and therefore you're not going to overpay for the property or the land or whatever that you have to start with, and you're also going to know when the danger signals arrive. Keith Weinhold 28:57 Have a buy box, for example, and stick to it. And you know we're really talking here about now how perhaps 20% of an investor's decisions are likely to produce 80% of their long-term wealth. And when we think about making better decisions, Richard, where do most successful people waste their time? Are there things that they should stop doing immediately? Richard Koch 29:23 I think 80 is not an exaggeration. 80% of the stuff we do is useless or counterproductive. Keith Weinhold 29:31 Yeah. Richard Koch 29:31 So knowing what that is, I have no idea what that is in real estate investing. I think it's probably being driven exclusively by data, or it's probably being driven by the contacts that you have, or whatever. You have to work out in any business where you're trying to make money what are the things that you do very, very well that other people don't do well, and that isn't going to be everything. It may be something really esoteric, something very. Rare, etc. But you've got to discover what are the hot spots which actually work for you and don't work so well for other people. Yeah, it's impossible to specify what those are. But what you have to realize is that most of what we do is useless, and a lot of what we do is counterproductive. And just focus on the things which are uniquely played to the strengths that you have, and that is very difficult to work out. But once you've worked it out, you can't go wrong. Keith Weinhold 30:32 Well, I think you've just touched on something fascinating because you've written that unreasonable success it often comes from identifying and embracing our individuality, and most people, if they're good at something, they like doing that thing, and if they like doing a thing, they're also good at it. But how does someone distinguish a genuine strength of theirs from something that they merely enjoy doing? Richard Koch 30:58 Well, you have to look at the results, and you know what are the results relative to the effort that's gone into it? And the effort is not just capital; it's also time, it's also contacts that you have. So you have to say, okay, I've got this theory about what I'm uniquely good at doing, but is it true? And you do need to test that with data. So you might think you're uniquely good at identifying property in a particular area or a particular type of property, but what's the track record of that? And the track record never lies. It's it's a correction. But there is something that you do which is exceptionally clever, and the rest of the stuff that you do is mediocre or possibly worse than that. Keith Weinhold 31:42 Maybe I need to rethink some of this myself personally, Richard. I think I'm, you know, wired to be an academic, but I put an awful lot of effort into being an athlete, and I sure don't get very many good results from that. So this conversation is helping me reframe a few things, perhaps. Richard Koch 31:59 So I'm going to roll with a mediocre athlete, if that's good for your health, and if that's good for relaxation, and if you enjoy it, there's no absolutely nothing wrong with enjoyment, but you have to make a distinction between enjoyment and your professional life, and yeah, the two don't always go together. Keith Weinhold 32:18 You're right. That will help me justify doing it. It's for my health, even if my trophy case is completely empty. No, Richard Koch 32:25 I think I think being healthy and being fit are probably the two most important things for not only you know longevity and good health, but also for financial success as well. I certainly would not discourage you from going training. Keith Weinhold 32:41 Well, Richard, you are a prolific author. So before you go, please tell us about your latest book. It's called 8020 Beliefs. Richard Koch 32:51 Yes, and I'll brandish it at you. This is my best book. I've only just written it, and it's a different book from all the other books that I've written is based on introspection, and the theory behind it is there are certain beliefs which we have, which are really bad beliefs for us, and we're not aware of them. And I describe in the book how you know I had a disabling belief which I really, really was not very helpful, and that was actually related to investment, etc. I believed that the most important thing in my life was making money, and I discovered through a variety of different feedback mechanisms and through some traumas and unhappiness that that wasn't true, and I had to give up that belief before I actually started making a lot of money. It's all counterproductive. It's all about intuition. It's all about getting your friends and family to talk to you when you are unhappy, and work out you know what is the source of your unhappiness. And it's usually a belief that you have which is not true. Richard Koch 34:00 The other thing which the book does is talk about good beliefs, beliefs that make you very successful, and there are a few of those which are suggested. It's based on 51 very intensive discussions with people about their lives, people that I'd known for decades and knew very well, and they bare their souls anonymously in most cases, but they do bear their souls. And if you want a book which is about you rather than about investment, this is the one to have a look at. 8020 police. Thank you very much indeed, Keith. The plug commercial there, and thank you for inviting me onto the podcast, I very much enjoyed it. Thanks very much indeed. Keith Weinhold 34:44 It's been so good getting to know you. Really fascinating. Thanks, Richard. Keith insight from Richard Koch today. He emphasizes the growth. Story find a real estate growth market that can mean a lot of things: job growth, population growth, or demographic growth in a niche like senior living. From his view, he likes that real estate is generally safe. For example, its value essentially never goes to zero. Isn't it novel how he challenges the idea that outstanding success requires genius, consistency, or even basic competence. That's kind of amazing to think through. Instead, what success takes is self-belief. Self-belief can even be irrational, and he also adds to that Olympian ambition, focus, and acquiring unique intuition. Keith Weinhold 35:47 So really, his outlook is rather optimistic if you think about it, because it's more of an approach where anyone can do this. Anyone can have massive success or wealth without having to win some sort of hereditary lottery, and since the 8020 principle, also known as the Pareto principle, means that 80% of your results come from 20% of your efforts, well, now you know more about what to allocate your 20% to and what to avoid. Make your vital few trump your trivial many. Gratitude to Richard Kosh and his wisdom today. Until next week, I'm your host Keith Weinhold. Don't quit your daydream. Speaker 2 36:38 Nothing on this show should be considered specific, personal, or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively. Keith Weinhold 37:06 The preceding program was brought to you by your home for wealth building, getricheduceducation.com

Keith explores U-Haul's truck-to-storage marketing strategy before turning to the shifting housing market. Housing intelligence analyst Rick Sharga joins him to discuss rising mortgage rates, affordability, regional home-price trends, and how inventory is shaping sales. They also explore builder incentives on new construction and what delinquency and foreclosure data may signal for investors. Episode Page: GetRichEducation.com/627 For access to properties or free help with a GRE Investment Coach, start here: GREmarketplace.com GRE Free Investment Coaching: GREinvestmentcoach.com Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: [email protected] Invest with Freedom Family Investments. For predictable 10-12% quarterly returns, visit FreedomFamilyInvestments.com/GRE or text FAMILY to 66866 Build your real estate portfolio with cash-flowing, fully renovated rental properties from Mid South Home Buyers: https://www.midsouthhomebuyers.com/ Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review" For advertising inquiries, visit: GetRichEducation.com/ad Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— GREletter.com Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Complete episode transcript: Keith Weinhold 0:01 Welcome to GRE. I'm your host Keith Weinhold. Fannie Mae creates a housing market assessment of 100 economists and market analysts. We're talking to one of those 100 today. How much are home prices really increasing? Also, supply level, housing demand, and are there threatening cracks in the delinquency numbers and more today on Get Rich Education. For years, I've sent listeners to Mid South home buyers in Memphis, and for years I've heard the same thing back: Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock and Dallas with its classic renovations and now brand new construction. For the first time in years, there's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years. It's called the Triple Five: 5% property management for five full years, half their standard fee, and Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the Forever Five. That's 5% management for as long as you own the property plus special cash pricing. With 6200 homes under management. Mid South is the place to turn for turnkey real estate. Book your free investment strategy [email protected]. That's midsouthhomebuyers.com. Speaker 1 1:36 You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education. Keith Weinhold 1:53 Welcome to GRE from Lebanon, Pennsylvania, to Lebanon, Oregon, and across 188 nations worldwide. I'm your host Keith Weinhold, and you're listening to Get Rich Education. Before we analyze today's market with our housing intelligence analyst guest, you know there's a new super interesting real estate strategy out there that seems to be getting traction. What makes it fascinating is that it starts out as a customer looking to rent a moving truck, and then they end up renting real estate from a landlord. Now, do you think that this is manipulative, or is it just a crafty and savvy marketing strategy? Here's how it works. U-Haul uses a truck rental as a gateway to a longer-term self-storage customer. It's a natural cross sell. Someone moving belongings. Well, they might also need somewhere to put them. That's part of the reason that really I think this is more about savvy and less about manipulation. Here's how this U-Haul strategy works. Keith Weinhold 3:05 All right, first you attract someone with an immediate need. Okay, a person that's searching for a moving truck from a place like U-Haul. That's a customer who is already in the middle of a move. When that customer is reserving the moving truck. They're offered a free month of storage with any qualifying one-way truck or trailer rental. Just one, only one free month of storage, and you could probably see where this is going. This is what U-Haul's doing. They're solving a related problem at the right moment, for the person that's moving, their new home might not be ready. That customer might be downsizing, or everything might not fit. Free storage makes saying yes easier when moving expenses are already piling up. Whether the customer wants the free one month of storage near the location they're moving from, or near the location they're moving to. Either way, we know human nature. Come on. Keith Weinhold 4:09 Once belongings are in that storage unit, customers who still need the storage space are going to continue paying monthly, month after month. In a lot of cases, this might go on for years because moving everything out of that storage space now that would require time, effort, and potentially having to rent another truck from U-Haul too. So, what U-Haul did is that they turned a short one-time transaction of a truck rental into recurring revenue. The business logic is that the truck brings in the customer, and then the one free month that transitions them into storage, and that ongoing need keeps them renting. It starts out with a person saying, "I only need a truck this weekend, and then it becomes, "I'll use the free storage until I get settled, and that need that they thought would be temporary can last for months. And that is the U-Haul storage conversion strategy-pretty savvy stuff. Now, when it comes to charging people rent or being a savvy business person, do you think that Donald Trump has ever slept in a tent? Let's see. Rick Sharga 5:30 Ever slept in a tent? Donald Trump 5:31 Yes, I did in camp when I went to camp. Rick Sharga 5:37 Where did you go to camp? Donald Trump 5:38 I went to a camp hilltop up in Binghamton, New York, and it was okay. Does anybody know? Rick Sharga 5:46 I'll be darned! Is that Bill? Great. Yeah. Did you charge the other kids rent? Donald Trump 5:50 I know. I started looking. I started thinking about it. Started thinking about it. Keith Weinhold 5:55 Hahaha. That is from the David Letterman show back in 2007. So this is when Trump's show, The Apprentice, was popular, and well before Donald John Trump became president. Thank you. I am grateful for you attending GRE's last live properties webinar recently. I hosted it along with the provider Mid South Homebuyers in Memphis. It was almost like a party. We had 410 registrants. So much involvement from you, and so many questions. People writing in the chat box how this show means so much to them. You know, seeing that, reading that during the event, like that was almost enough to make me cry. I didn't bring this up during the event because I didn't want to put the attention on myself, but I did see that appreciation you have for the show here, and I want to sincerely thank you for that. We crossed the 12-year mark here. Yes, episode one of the Get Rich Education podcast was released on october 10, 2014. This is 12 years of delivering a new show every week, 52 weeks a year, and never replaying an old episode. Always fresh real estate content. Keith Weinhold 7:01 You definitely know where to find me, and when it comes to reliability, gosh, don't you wish that a mortgage lender first like understood investors? How about if a credible lender were built by an investor for investors with real humans and no call centers ever, and this lender actually taught you the math and even ran it with you. Education first. I just described Ridge Lending Group. That's why it's where I get my own loans. You can do that too for your next investment property. Start at RidgeLendingGroup.com. That's how they operate there at Ridge Lending Group. Now, back in May, you remember that I released an episode, and its title was "Our Most Important Message in Years, and that message sure is coming true. That was episode 606. Back then, you remember how I articulated basically the effects of the Iran War and the wave of inflation that it will bring, and how that's going to change the bond market and supply and the replacement costs of homes and the mortgage rates. Our guest and I will touch on those themes and more about both the good and the bad of today's housing market. We'll also spotlight where some investor opportunities are. I'd like to welcome back to the show a returning guest who I first learned about through a mutual real estate friend three years ago, and he's really become quite a regular here because he is so knowledgeable. He's a longtime housing intelligence analyst, and he's the president and CEO of the C.J. Patrick Company. Oh, it's a warm welcome back to, like me, a native Pennsylvanian, Rick Sharga. Rick Sharga 9:24 Thanks for having me back, Keith. Always a pleasure to be here and share thoughts of our old home state, Keith Weinhold 9:30 the Keystone State. And you know, Rick, you look at a lot of the same parts of the housing market that I do, but you also look at some parts that I don't look at very often. For example, delinquencies and foreclosures, which is something that we can get into. Just overall, what are your thoughts about the housing market as it stands today? Rick Sharga 9:50 Well, as we speak today, the market is sort of in shock because we've seen mortgage rates jump up as high as seven and a half percent. In a year when most forecasts were expecting mortgage rates to go into the low sixes and maybe even the high fives, I think the market is kind of going through a transitional period trying to figure out who can afford what, whether people can actually afford to sell their homes, and how we adjust to a seven handle after we we had just gotten used to sixes not too long ago, so a little bit of frustration in the housing market right now. I think we've seen things slow down a bit, and there are implications for the path forward and for things that you wouldn't think about, like the impact of higher mortgage rates on on foreclosures. So there's all sorts of things going on right now. Keith Weinhold 10:42 Right before the war in Iran began, Mortgage News Daily tells us that mortgage rates fell to 5.98% They've been up about one and a half percent just since that time, about seven months ago. And yeah, you use the word shock, Rick. I've been thinking the same thing, you know, people are going through an adjustment period with today's normalized interest rates-not historically high, but normalized interest rates amidst the somewhat healthy economy. 30 years ago, the economy was booming amidst the advent of everybody starting to use the internet, and now it's AI. Back then, 30 years ago, the federal funds rate was one and a half percent higher than than it is today, and mortgage rates were 7.8% back then. So I'm talking about 1996. This is four years before the.com bust and five years before a recession occurred, and back at that time, both home prices and rents grew substantially during that period. Even though affordability was better then than it is now, in fact, from 1996 to 2000, cumulatively, home prices grew 21 percent, and rents grew 14%. Now, pretty normal historic clip. So really, my point is that today's economy is fairly healthy. Rates have normalized, and now rather than the internet boom, we've got the AI boom. You use the word shock. Yeah, people need to adjust. Rick Sharga 12:17 Yeah, and I think it's important when we talk about affordability, which is what you're getting at there right now. If you factor everything in, we're probably in the second least affordable period on record in terms of home prices. If you go back to the the least affordable time, that was probably in 1983, and the culprit there was mortgage rates that were 1819, 20, 21% The people were doing celebratory dances if they got a mortgage rate at 12%. Keith Weinhold 12:48 Right. Rick Sharga 12:48 And so you look at things historically, and you've pointed out correctly that you know at even at seven and a half percent mortgage rates, you know we're below the long-term average, which was 7.7, 7.8% Keith Weinhold 13:01 Yes. Rick Sharga 13:01 However, home price growth has outpaced wage growth significantly over that period of time, and we're coming off a very unusual set of circumstances in the housing market. Something that's really never happened before. When we got into COVID, and so we can we can blame a lot of this on COVID, and for the conspiracy theorists, we can blame a lot of this on the Federal Reserve. But the Federal Reserve took extreme measures to try and prevent a depression in the economy because nobody knew how bad things were really going to get, and we were in that zero interest rate period for some period of time, which drove mortgage rates down into the twos and threes. That pulled a lot of demand forward. People came out of everywhere to buy houses at historically low mortgage rates, and so home prices went up about 47% in the space of two years. And at the end of that, the Federal Reserve, in order to get inflation back under control, started raising the Fed funds rate, which drove mortgage rates up into the really as high as 8% at one point. So we saw property values go up by 45 to 50% Then we saw mortgage rates double. And if you look at at historical numbers from Freddie Mac, what you'll find is that in the history of the United States, we'd never experienced a period where mortgage rates doubled during a calendar year, and in 2022 they doubled not in a calendar year, but in a matter of a few weeks, and that sort of shock to the ecosystem. That one-two punch, extremely high price appreciation, followed by a doubling of mortgage rates, even though the mortgage rates aren't out of that long-term historical norm, was enough to kind of knock the stilts out of the housing market. So we've had a very different house market crash this time. It's not that prices fell 20, 3040, 50% It's that we went from 6 million sales to. 5 million, and then to 4 million, and we've been stuck in this 4 million range now for the last really three and a half years. There was a lot of hope that we'd start to feel more like a recovery in 2026, until the war in Iran started. Oil prices went up, took bond yields up, and took mortgage rates up with them, and so we're in a very unusual market in terms of housing right now, and it's a difficult scenario, particularly for first-time homebuyers who didn't experience that growth in home equity that people who owned homes back prior to 2022 did. Keith Weinhold 15:36 I characterize it as we had a supply crash around 2020 or 2021, and that was followed by a transaction volume crash. And you know, it's funny, Rick. Actually, when mortgage rates started their sharp increase in 2022, my early reaction was like, you know, this is not so bad. A return to normalcy. You know what's with all this artificial intervention? There should be a cost to money. I mean, this is good, but you know, after three years of this slow transaction market, I don't really feel that way anymore. Rick Sharga 16:13 People ask me a lot of times what's going to fix the housing market, and I give them the same answer, which bothers them because it's a boring answer, not something they can impact. It's time, and when 2022 happened and mortgage rates doubled, one of two things was likely to follow: either one, home prices would crater in order to fix affordability, or two, and this has happened before historically, we would go through an extended period of time where things would just slow down to a crawl, where sales volume would slow down, where home price appreciation would slow down, and it would give wage growth a chance to catch up. And during that period of time, what hope was was that mortgage rates would not necessarily go back into the threes and fours, but would come down at least a little bit. And over time, those three legs of the affordability stool, if you will-home price appreciation slowing down, wage growth continuing, and mortgage rates kind of flattening out-would improve affordability enough that people would start to come back into the market, and we started to see that. If we got into numbers last year, you found that there were actually more people who had a mortgage rate above 6% than below 3% and that's the first time that had happened since 2022. Rick Sharga 17:37 So things were starting to get back to normal. We ended the year with quite a bit of momentum in terms of home sales, the last five months of the year we had higher year-over-year home sales, and price appreciation was slowing down. Everything was in place the way we were hoping, so that 2026 could be sort of an inflection point and lead the way to a recovery. Then Mother Nature weighed in in January and February, we had unusually severe weather in the Northeast and Midwest. I think home sales were down in the Northeast about 8% in those first two months because of bad weather. And as we started to recover in March, the war in Iran broke out and mortgage rates jumped. And surprisingly, with all that bad stuff happening, with inflation getting higher, with gas prices going higher, consumer confidence being at an all-time low, with all of that, if you go through the end of August, home sales are actually up 1.6% year over year. So there is a lot of pent up demand out there. We have a population that's aging rapidly into home buying age, and would like to become home buyers, just waiting for market conditions to allow them to do so. And unfortunately, now with mortgage rates up a full point higher than they were a year ago at this time, it's tough for people to at least get through the psychological barrier, if not the economical barrier. Keith Weinhold 19:01 Yes, and I think the fastest way to relieve pent-up demand is with a drop in mortgage rates because wages aren't expected to increase as sharply and as quickly as mortgage rates can decline, and home prices continue to stay pretty stable. But Rick's got some slides prepared for us, and Rick, why don't you go ahead with your housing market detail? And for those of you in the audio only, Rick is really good at describing things for those that don't have the visual aid. Rick Sharga 19:32 Thanks, Keith. Yeah, we'll jump in, and this is kind of a recap of some of the things we've already talked about to start with. Higher mortgage rates, you and I have been talking about quite a bit already, really have contributed to worsening affordability. So the market was starting to feel at least marginally more affordable. So things weren't affordable for everybody, but more homes were more affordable for more people, particularly those, and I'm sure you've talked about. In sort of the upper leg of the K-shaped economic recovery, if you break that K into two parts, the upper half is doing pretty well, and actually is where most homeowners reside. If you look at the lower half of that K, it's predominantly renters, and those renters need whatever breaks they can get to become homeowners, and these higher mortgage rates certainly aren't helping. For your listeners who are wondering about when rates will go down, the short answer is they're unlikely to go down at all until we get oil prices back under control, which means not until the war in Iran comes to a conclusion. Rick Sharga 20:38 Very likely, because that drove bond yields up, and bond yields drive mortgage rates, but the bond markets are also concerned about the $40 trillion federal deficit, which leads the Treasury to print more bonds and sell more bonds in order to pay down the debt, and so they're now competing, and it also is a little bit concerned about the massive investment in data centers to support the growing AI business. So all of that is kind of in this big competitive scrum, if you will, which is causing the bond sellers to increase yields in order to sell these things off. So even once we get oil prices back under control, the likelihood of a huge drop in mortgage rates isn't great, but anything even back in the sixes right now would probably be appreciated by buyers. Keith Weinhold 21:29 My audience knows that I personally don't make mortgage rate predictions. I think it's a fantastic way to be wrong, but I recently found it noteworthy, Rick, when Cotality's chief economist Selma Hep, to paraphrase her, she said that mortgage rates are not going to get down to levels where mass buyers want them for at least three years. Rick Sharga 21:49 I think she's probably spot on. If you look at recent revised forecasts from the Mortgage Bankers Association, from the economics team at Fannie Mae, they've all raised their mortgage forecast for 2027 to be no better than the high sixes, and the likelihood of us being in the low fives or high fours, absent a huge recession or another global pandemic, really isn't particularly strong for the next few years. So I think Selma's probably spot on. We have seen home prices continue to increase, according to the National Association of Realtors. Sales prices increased on a year-over-year basis for the 38 th consecutive month. But it's important to note where these price increases are landing. So, the NAR said the prices went up by about 1.6% year over year. In the same month, the rate of inflation was 3.4%. So, if you look at a home price in adjusted dollars, if it went up 1.6 percent year over year, it's actually cheaper than it was a year ago. And so, home price appreciation is not keeping pace with either the rate of inflation or wage growth, and wage growth hasn't been exciting. But even at 3.1% which was the most recent number, wages are going up faster than home prices. So over time, this does have a little bit of a mitigating effect on affordability, and this is true no matter whose price appreciation numbers you're looking at. NAR had it at 1.6 percent. The FHFA, which is the government body that controls Fannie Mae and Freddie Mac, had it at about 2.3% in their most recent mark. And there's a report that Fannie Mae puts out that's based on the assessments from 100 different market analysts and economists, I'm honored to be one of those 100. But our collective number for the year is probably between 2.1% and 2.2% annual growth. So, for all intensive purposes, home prices have flattened out. And what's important to note for anybody who's looking to invest, anybody who's looking to buy a home, is these national numbers are useful, but in your local market they're useless. If you look at the top 300 metro areas, for example, across the country, what you would find is that about 54 of those markets are seeing home prices actually fall year over year, and a lot of those markets are concentrated in in Florida and Texas, that Gulf Coast region in particular. Rick Sharga 24:27 There are a handful of markets where prices accelerated rapidly in the post-COVID era. Markets like Austin and Denver, Phoenix, Las Vegas, Seattle, Atlanta, and we're seeing some clawbacks, some some price corrections in those markets because they accelerated too high and too quickly, but if 54 of the top 300 metros are seeing price declines, that means that 246 are seeing prices go up, and a lot of the markets where prices are going up the most rapidly are in the. Northeast and Midwest, because there's a very strong correlation between inventory levels of homes available for sale and price trends. And by the way, those price declines for people who continue to be promoting the coming devastation of home prices in the country. I think this is one of the first things you and I ever talked about on your podcast. The markets with the biggest year-over-year price declines right now were Austin and Myrtle Beach, South Carolina, and in both cases, that enormous year-over-year decline was 4% On the other hand, you have markets like Wausau and Hartford, and and places in the Midwest and Northeast where prices are going up 567, 8% year over year. So really important to know what's going on in your local market or whatever local market you're looking to transact in, because the prices and the price trends vary pretty significantly across the country. Keith Weinhold 25:58 And Rick, we're talking about home price change. It's interesting. There are so many different ways to divide up the market. A lot of our listeners and viewers buy entry-level homes, oftentimes single-family homes in the 300 something Ks and less. Do you have any sense for how much home price growth there is in entry-level homes versus the national number? Rick Sharga 26:20 You know, you would expect that entry-level homes would see prices going up at a higher rate than, say, luxury homes. It's actually not the case right now, and one of the reasons I believe is not the case is because there's very little entry-level inventory available anywhere, and a lot of the inventory that is available is in a pretty sad state of disrepair, so really can't capture significant price increases. What we're seeing right now is that a lot of people in entry-level homes locked in at lower mortgage rates and simply can't afford to move up, so they're keeping these homes off the market, and for whatever reason, the again the the limited number of homes that are available and usually supply and demand would work to drive those prices up isn't working as much as you'd expect, at least in the data that I'm seeing. And again, I think it's partly because these the homes that are available tend to be older homes that need a lot of work. Keith Weinhold 27:24 Yes, and with affordability for everything being difficult, yes, you can see how perhaps some of these people that have lived in these entry level homes for a long time, locked into low mortgage rates, might not have that much discretionary income for renovations and such. And boy, this really makes it valuable for a lot of the providers that we deal with that build new construction single-family homes, often in the three hundreds or less. That's what America really needs. Rick Sharga 27:52 Yeah, I'm seeing the same thing you are when I look at investor data, Keith. The sweet spot is in the three hundreds, probably. Interestingly, the big institutional investors buy even cheaper when they're still buying, and they they really are focused on less expensive markets and smaller, less expensive properties that do need some work. But a lot of those big investors are actually redeploying their capital now into ground up construction, and partly that's because of the new legislation that was passed recently, the 21st Century Road to housing bill. One of the other interesting things, and this looks like a contradiction to what we just talked about, was while sales prices continue to go up, list prices are actually down for the 10th straight month, and so there's a difference between the final sales price, which is up year over year, and the list price, which is down just a smidge, about 1.3% year over year as well. What that suggests to me is that the sellers are getting a little more rational about their list prices today. Rick Sharga 28:56 We do still see that a very significant number of properties that are sold are taking a price reduction. Depending on whose numbers you follow, data from Realtor.com that says about 20% of listings are taking a price reduction. They're probably talking about all listings, whereas some other groups are showing 40% list price reduction number. Like 40% of all homes are taking a list price reduction. I believe that refers strictly to properties that have been sold. And again, these aren't huge price reductions, but the fact that we're starting to see people get a little bit more rational with their list prices, the fact that we're seeing a continually high number of list price reductions also tells me that buyers realize they have a little bit more room to negotiate, and are probably negotiating a little harder before they close that transaction. Keith Weinhold 29:48 You're listening to Get Rich Education. We're talking with housing intelligence analyst Rick Sharga with the C.J. Patrick Company with detail about today's housing market. More when we come back. Keith Weinhold 29:58 I'm your host Keith Weinhold. 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You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your pre-qual and even chat directly with President Caeli Ridge while it's on your mind. Start at RidgeLendingGroup.com. That's RidgeLendingGroup.com. s Todd Drowlette 31:34 This is the star of the A and E show, The Real Estate Commission, Todd Drowlette. Listen to Get Rich Education with my friend Keith Weinhold, and don't quit your daydream. Keith Weinhold 31:54 Welcome back to Get Rich Education. I'm your host Keith Weinhold. We're going deep on the state of the housing market with housing intelligence analyst Rick Sharga, and Rick, I know you've pointed out a strong correlation between inventory and prices. It's like economics one on one is supply demand, and so much of price change has had to do with supply in today's market. Rick Sharga 32:17 Yeah, it's really interesting, Keith. When you start to take a look around the country at inventory levels of homes that are available for sale, there's about a 4.6 month overall supply of homes available for sale, and that's a combination of how many homes are listed and how quickly they're going through that sales transaction. So it's not just raw numbers; it's kind of a calculation. But if you look at just the kind of raw numbers of inventory, we've been going up since 2021 at double digit inventory growth every year 15 20% more homes available for sale until late last year, and if we're looking at this year, inventory levels are up probably less than 2% year over year, so we're seeing fewer properties listed for sale. And in fact, the only reason inventory numbers are up is because it's taking a little longer to sell them once they're on the market nationally. The median number of days on market is about 60 days, but that varies wildly. If you're in a market like Denver, it might be taking you 90 days if you're in coastal California. It might be taking you 14. So it really depends on where you are in the country. But if you look at where we are compared to a year ago, almost every state in the union has seen at least a modest increase in inventory. Rick Sharga 33:40 There are a couple of markets where prices have been falling. Markets like Florida, parts of Colorado, areas like Boise, Idaho, where there's been a retrenchment. So we had too much inventory. Prices started to fall, and so we're seeing inventory pulled back a little bit off the market. And if you go back as far as you know prior to COVID, when we had that buying boom, probably only about 19 or 20 states have more inventory available today than they did prior to Covid, and a lot of those markets are markets that we talked about earlier: southern markets, Gulf Coast states, some markets in the southeast where prices have weakened, whereas you got a state like Illinois, which is 62% less inventory available for sale. Parts of the Northeast similar numbers, and that's again where we're seeing home prices go up the most because people have to compete for the available properties. Keith Weinhold 34:36 If you, the listener and viewer, remember the last time Rick was here, we had an episode about is there really a housing shortage? The short answer is yes. We continue to heal. We continue to build more and try to provide more available inventory to get ourselves back up to pre-pandemic levels. Rick Sharga 34:54 Yeah, and two of the metrics that I look at, Keith, in terms of where the market is going. Are something called pending sales, which is a report that's put out that shows contracts that have been entered into, but the transaction hasn't been recorded yet. And the other is the mortgage purchase application index, people applying for a loan to buy a house, and both of those have been doing fairly well year to date until we cross that 7% mortgage threshold, at which point both of them dropped pretty significantly. So the mortgage purchase applications index dropped to about 13% lower number than it was a year ago, and in in September we had about 6000 fewer pending sales than we had the same time in September a year ago, so these two metrics are usually an indicator of what to expect in the months ahead. And what they're suggesting to me is that September and October home sales are probably not going to be terribly exciting as people adjust to these new higher rates. That said, we had been coming out of a period four consecutive months, starting back in April, where we sold more homes than we'd sold the prior year. Rick Sharga 36:07 August broke that streak. We actually sold fewer homes than we did in July, and fewer homes than we did August a year ago. And we're coming up to a time in the year where 2025 sales actually were pretty strong for the last four months of the year, so I'm afraid that our our sales comps, if you go year versus year, are going to be challenged for the rest of this year. So the good news is, I mentioned a few minutes ago that at the end of August we were still 1.6 percent ahead of where we were a year ago in terms of home sales. The bad news is, in a best case scenario, I think we're probably going to be flat year over year by the time we get to the end of December. New home sales, interestingly, had a really good month of August. They had dipped down to about 607,000 annual sales in July, but zoomed up to about 684,000 in August. Keith Weinhold 37:02 Okay, we're talking about brand new construction here as brand new resale. Yeah. Rick Sharga 37:06 While the resale numbers look like they're flatlining at about 4 million a year, if we were to hold this 684,000 number through the end of the year for new home sales, we would actually surpass a lot of the forecasts for 2026. So, in a lot of cases, Keith, I'm seeing investors buying closeout properties from new home sellers and converting them into rental properties. I was recently speaking at an event in Northern California where I saw a builder advertising 2.9% mortgage rates. So the builders are buying down these mortgage rates in order to entice buyers. They're making price concessions. They're making concessions on fixtures and upgrades to the properties. So you know, for people looking not for a fix and flip investment, but for a rental property investment, don't look away from new home builders because they are looking for opportunities to move some of their assets, and the majority of them are making price concessions. In fact, there's a really unusual thing happening right now, Keith, in that the median sales price of a new home nationally is lower than the median price of an existing home. Keith Weinhold 38:15 Right. Rick Sharga 38:16 You mentioned building. I don't want to walk away from that. Housing starts are actually a little bit down year over year. That's true for both multifamily and single-family homes. The most recent numbers in August, we had about 1.27 5 million housing starts. Again, down year over year and month over month. On the other hand, though, building permits are actually up year over year. Almost 1.4 million building permits were issued. So, I believe builders have a good, positive long-term view of the housing market. But in the short term, the reality is they're trying to work through a bit of a backlog. There are 483,000 new homes available for sale at current sales rates. That's about an 8.5 month supply. Keith Weinhold 39:01 That's a lie. Rick Sharga 39:02 And normally with new homes, you're looking at a six to seven month supply. So right now, I really do believe what builders are doing is being circumspect about starting too many new projects and trying to work through the inventory they have, so they don't get caught in a position like they were right before the housing market crashed back in 2006, 2007, when they were sitting on about a 13 month supply of homes, Keith Weinhold 39:28 I'm so glad that you spotlighted this, Rick, as new build homes being a potential opportunity for investors. It's the same thing that I've been telling my audience for over a year, because for more than two years now, builders have commonly offered generous concessions. For example, 12 days ago, I hosted a webinar with our provider in Memphis called Mid South Homebuyers, where they are buying down your mortgage rate to about five and three quarters percent on a 30-year fixed-rate loan, and they're also having their. Property management fee from the normal 10% down to 5% as new build incentives. Rick Sharga 40:06 That's pretty generous, but it's not out of the ordinary for what we're seeing across the country, particularly from builders trying to wrap up a project. Keep in mind, they want to recapitalize so they can move on to the next build, and so it is an opportunity that is a little bit unusual for investors, historically speaking. Just a few words I wanted to share with you, Keith. You mentioned foreclosures. Right now, interestingly, mortgage delinquency rates are relatively low. If you look at all mortgages across the country, about 4.37% of those, just below 4.4% are in some stage of delinquency. That's lower than the long-term average, which is about five and a quarter percent, and lower than the numbers were prior to the pandemic. The outlier here is the FHA. So FHA loans are running at about a 12% delinquency rate. Keith Weinhold 40:57 Wow! Rick Sharga 40:58 And if you look at seriously delinquent mortgages, loans that are 90 days past due or foreclosure, about 6% of FHA loans find themselves there. So, over a half of all seriously delinquent mortgages are FHA loans, and that's despite the fact that FHA mortgages only account for about 15% of the market. So, a very disproportionate share. We talked about markets earlier where home prices have been declining, and if you look at where the FHA loans. So for your listeners looking for potentially distressed properties to buy, what I'm suggesting is the bulk of them in the next 12 to 18 months are probably going to be on FHA properties, and if you're looking for where those are, they have a disproportionately high share of market, starting in Denver, going down to Las Vegas and Phoenix, and then across the southern band of the country. 10% of all FHA loans are in Texas. 10% of all FHA loans are in Florida. 20% of all Oklahoma mortgages or FHA loans, so that's where you're going to see a lot of these FHA loans. They're in markets where property values have been declining year over year, not dramatically, but if you took out an FHA loan with a three and a half percent in Austin and property values are down 4% you're effectively underwater a year later, and if you also look at where insurance premiums have gone up the most for homeowners, it's the same markets. And if you were to look at where student loan delinquencies are the highest, it's also the same markets. So it's almost this perfect storm for FHA borrowers in that southern band across the country, and I suspect if I were to predict where we would see the most foreclosure activity in the next couple of years, that's really where I would be looking. Keith Weinhold 42:53 Okay, so foreclosure activity a little low overall historically, but heavily concentrated with FHA borrowers, and I mean, there are some reasons for that. FHA versus conventional. I mean, with FHA, typically a smaller down payments used. Oftentimes, that borrower has a lower credit score and a higher debt to income ratio. Consequently, that's why more of them have gotten into trouble. Rick Sharga 43:16 Yeah, they have less wiggle when they do get into trouble too. So, if you're an FHA borrower and you lost your job temporarily. You may never be able to catch up on your mortgage once you've missed a couple payments. It's in the industry we talk about being, you know, one broken water heater away from a pretty nasty delinquency cycle. The VA portfolio is also experiencing slightly higher than usual delinquency rates. Something for your listeners to think about, by the way, in this relatively high mortgage rate environment, is virtually all FHA loans and VA loans are assumable. Meaning, if you bought that property, you could, generally speaking, take over the loan from the original homeowner and get a second loan to make up whatever difference was required to buy that house, and that's one way to get a mortgage with a lower rate than what you would get on the open market today. Need to be working with somebody who can walk you through how assumable loans work. Not always something you might be able to use necessarily for an investment property, but certainly something worth looking into if you're looking for ways to save some money. We were talking about foreclosure activity. The first legal notice you get that you're in default on your loan is called a foreclosure start. Rick Sharga 44:34 They're up about 10% year over year, and they're up to about 85% of where we were right before the pandemic hit. My suspicion is that we will be back to pre-pandemic levels by the end of this year. So that's the first stage of foreclosure. We're seeing foreclosure sales up about 6% year over year, but they're nowhere near where they were prior to the pandemic. So something is happening between that initial. Notice of foreclosure and a potential foreclosure sale, where either people are getting their loans modified and making payments, or increasingly a lot of these folks, when they get that foreclosure notice, are selling the property on the open market because they do have some equity and they'd rather protect that equity than risk losing it all to a foreclosure sale. So, again, a point for your investors out there: if you're looking at foreclosure activity, look at those early stages of foreclosures and reach out to the homeowner, because this could be a win-win scenario where you get a property below market value that's not in terrible shape, and you actually help that homeowner avoid a foreclosure and walk away with some money in their pocket, and foreclosure inventory not back to where we're seeing it normally. Prior to the pandemic, we were around maybe 350,000 homes in some stage of foreclosure. Rick Sharga 45:54 Now we're at about 250,000, but it's the highest number we've seen since the government put all those restrictions in place back in 2020. So net net of all of this, Keith is that for the first time, really in the last seven years, we are on pace to see foreclosure activity to finally surpass 2019 levels. And I don't say that gleefully, and I don't say that dismissively. But even in 2019, we were looking at an unusually low number of foreclosures because the economy was strong. There was a lot of equity, and lending standards were so high. So it's been a long slog since then because of COVID, because of the government protocols that were put in place, and again because there was equity and lending standards. But if your buyers are out there looking at foreclosures, we're probably going to be back to those pre-pandemic levels by the end of this year. Keith Weinhold 46:46 Okay, perhaps some more opportunity there, Rick Sharga 46:49 And that's really all I had prepared in terms of prepared comments today, Keith. But there's a lot that we've already covered in terms of what to expect in the housing market. Now, what to expect in the distressed market? Foreclosures, distressed properties in general, still going to make up a very small percentage of overall sales. And for anybody expecting to see a boom in bank-owned properties coming to market or a huge number of short sales coming to market, neither of those appears to be in the cards for any time in the near future, Keith Weinhold 47:23 and it sounds like everybody sure should get used to this normalized interest rate environment. Well, Rick, this has been great. How can our audience engage with you and what you do? Rick Sharga 47:36 Well, I'm easy enough to find on social media, Rick Sharga at either LinkedIn or on what used to be called Twitter, you can also visit my website cjpatrick.com. But if you reach out to connect with me on either X or LinkedIn, just mention that you saw the podcast with Keith, so that I know you're not some Russian bot coming to Hackney. And you'd be surprised some of the the invitations I get on social media, Keith, or or maybe you wouldn't, but always happy to connect with people who are looking for information on real estate and mortgages. Keith Weinhold 48:07 That is spelled S H A R G A. Rick, it's been great having you here. Rick Sharga 48:12 Always a pleasure, Keith. Keith Weinhold 48:20 Nice assessment from Rick. Both being native Pennsylvanians, he and I have the same favorite football team, and I've since talked to Rick about it. And wow, he really knows how to break down the NFL X's and O's stuff. One of the opportunities Rick brought to light is particularly interesting: new build home supply at eight and a half months, where six to seven is normal. That's part of what provides the motivation for builders to buy down your rate for you. They want to clear some of that supply. One thing that has not changed is that just regular buy and hold real estate still pays five ways simultaneously when you buy right, such that a total rate of return of at least 20 to 25% each year is not out of the ordinary at all. If you're new to this show, that might sound impossible or high flying or like you're taking some big risk, it is none of those things. This is why real estate has made more ordinary people wealthy than anything else. That's exactly why. And if you're uninitiated on that, I provided five videos for free. That is course level instruction. Me teaching you, and at the end of each video, with a typical property, I add up your rate of return, and it culminates in the grand total at the end of the fifth video. I can't recommend the series more. It's free, and it is wide open available. You don't even need to leave your email address. You can access. That course level video series called Real Estate Pays Five Ways at getricheducation.com/fiveways. You can land there and start watching immediately. Again, it's getricheducation.com/fiveways. That's with the number five. Now you know how I've discussed that waiting for lower mortgage rates is a losing strategy, and you just cannot count on that happening. And I haven't just said that for months; I have said it for years. If you've been waiting for mortgage rates to come down before owning investment property, maybe you think that next I'm going to say you'll be waiting a long time. Yes, you would be, but you might be waiting for something that is already available, and here's what I mean: in select markets, home builders are offering substantial incentives to move new inventory, and one of the most valuable incentives is that aforementioned mortgage rate buydown. With the way the numbers work. That is better than an overall price cut. And some of these providers are doing multiple incentives. They're both buying down your mortgage rate and cutting your property management fee in half, or giving you some other incentive. So while you might see these prevailing mortgage rates quoted a lot higher in the mainstream financial media. Some new build investment properties can come with builder-paid financing incentives that bring your rate meaningfully lower, still into the fives. And it's not always new build; sometimes it's resale property as well. That can change the entire deal and help ensure that you're paid up to five ways at the same time. A lower rate, of course, means a lower monthly payment, better cash flow, and a property that makes sense today, not someday if rates happen to fall someday. But you need to know where these opportunities are, which providers are offering them, and whether the property itself still makes sense after you look at rents, expenses, management, and the local market. This is exactly where we can help you with our GRE investment coaching. Our investment coach can help connect you with investor-friendly properties and providers in markets where the numbers make sense, including a lot of new builds with those rate buy downs and when and where they're available, and they sure are now in Florida, Tennessee, Georgia, Arkansas, Alabama, Ohio, Indiana, Kansas, and more. And see, because we deal nationally, and we do this for a lot of buyers. We have the scoop. We know what kind of offer sellers will accept because we've seen what other buyers have tried and what has worked and what hasn't, and it is actually free to meet with a GRE investment coach if you even wanted to buy something from us, you cannot because we don't have anything to sell. So build your wealth. Keith Weinhold 49:25 This is why real estate has made more ordinary people wealthy than anything else. That's exactly why. And if you're uninitiated on that, I provided five videos for free. That is course level instruction. Me teaching you, and at the end of each video, with a typical property, I add up your rate of return, and it culminates in the grand total at the end of the fifth video. I can't recommend the series more. It's free, and it is wide open available. You don't even need to leave your email address. You can access. That course level video series called Real Estate Pays Five Ways at getricheducation.com/fiveways. You can land there and start watching immediately. Again, it's getricheducation.com/fiveways. That's with the number five. Now you know how I've discussed that waiting for lower mortgage rates is a losing strategy, and you just cannot count on that happening. And I haven't just said that for months; I have said it for years. If you've been waiting for mortgage rates to come down before owning investment property, maybe you think that next I'm going to say you'll be waiting a long time. Yes, you would be, but you might be waiting for something that is already available, and here's what I mean: in select markets, home builders are offering substantial incentives to move new inventory, and one of the most valuable incentives is that aforementioned mortgage rate buydown. With the way the numbers work. That is better than an overall price cut. And some of these providers are doing multiple incentives. They're both buying down your mortgage rate and cutting your property management fee in half, or giving you some other incentive. Keith Weinhold 51:16 So while you might see these prevailing mortgage rates quoted a lot higher in the mainstream financial media. Some new build investment properties can come with builder-paid financing incentives that bring your rate meaningfully lower, still into the fives. And it's not always new build; sometimes it's resale property as well. That can change the entire deal and help ensure that you're paid up to five ways at the same time. A lower rate, of course, means a lower monthly payment, better cash flow, and a property that makes sense today, not someday if rates happen to fall someday. But you need to know where these opportunities are, which providers are offering them, and whether the property itself still makes sense after you look at rents, expenses, management, and the local market. Keith Weinhold 52:10 This is exactly where we can help you with our GRE investment coaching. Our investment coach can help connect you with investor-friendly properties and providers in markets where the numbers make sense, including a lot of new builds with those rate buy downs and when and where they're available, and they sure are now in Florida, Tennessee, Georgia, Arkansas, Alabama, Ohio, Indiana, Kansas, and more. And see, because we deal nationally, and we do this for a lot of buyers. We have the scoop. We know what kind of offer sellers will accept because we've seen what other buyers have tried and what has worked and what hasn't, and it is actually free to meet with a GRE investment coach if you even wanted to buy something from us, you cannot because we don't have anything to sell. So build your wealth. Keith Weinhold 53:10 You can book a time with a GRE investment coach at a time convenient for you to simply get clarity, look at real opportunities, and decide whether any of them fit your goals, you can open a calendar and set that right now at greinvestmentcoach.com. We can help you build your wealth. It's truly free at greinvestmentcoach.com. Next week, here on the show, a new way to build your wealth through real estate, and it's possible that you've never heard about it before. Until then, I'm your host Keith Weinhold. Don't quit your daydream. Speaker 2 53:51 Nothing on this show should be considered specific, personal, or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively. Keith Weinhold 54:19 The preceding program was brought to you by your home for wealth building, getricheduceducation.com

Keith asks why so many people end up competing in the "Grind Olympics" of the traditional day job, and explains why separating income from time is key to building real wealth. He then counts down the top five ways to give a rental property a raise by increasing its net operating income, and points to the lever investors most often overlook. Keith also looks at what has happened to home prices during every major stock market crash since 1980, and shows why negotiating better financing terms can beat simply getting a lower purchase price. He offers practical strategies for building cash flow, creating value and investing with more confidence in any market. Episode Page: GetRichEducation.com/625 For access to properties or free help with a GRE Investment Coach, start here: GREmarketplace.com GRE Free Investment Coaching: GREinvestmentcoach.com Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: [email protected] Invest with Freedom Family Investments. For predictable 10-12% quarterly returns, visit FreedomFamilyInvestments.com/GRE or text FAMILY to 66866 Join Mid South Home Buyers' one-time, free live webinar featuring Keith Weinhold on September 30 at GetRichEducation.com/MidSouth to learn how Memphis' economic expansion could create new real estate investment opportunities, and have your questions answered in real time. Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review" For advertising inquiries, visit: GetRichEducation.com/ad Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— GREletter.com Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Complete episode transcript: Keith Weinhold 0:01 Welcome to GRE. I'm your host Keith Weinhold. Does your day job have you competing in the Grind Olympics? It's something that you never signed up for, and the top five ways to increase your rental property's income. Then, when stocks crash, what happens to real estate? You'll see historically today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. In September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Homebuyers, the largest turnkey company in Memphis with more than 6000 homes under management, for a free live webinar the likes of which I've never done before. We're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth again. that september 30. Don't say we didn't tell you. Save your spot at getricheducation.com/midsouth. Speaker 1 1:34 You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education. Keith Weinhold 1:50 Welcome to GRE from Wheeling, West Virginia, to Whiting, Indiana, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich Education. Before I get into basically giving your rental property a raise with the top five ways to increase its income, first let's get the context of pulling back and understanding your compelling why for all of this. You may or may not like investment property itself-it's more likely rather that you love what it does for you. That's how it is for me. What do most people do? It's like they're training for the Grind Olympics. Are you doing this too? But you don't remember signing up? I mean, that's kind of what the day job is, society's vortex gradually pulls you into it. The investment property is what gradually tilts you out of it, or it gives you that option. For so many, the day job, it's sort of like this competition that really no one officially announces it yet. Millions enter it. Who can work the longest hours? Who can answer the most emails? Who can miss the most family dinners? Who can delay their life the longest? And at the end of it all, something we call retirement. If you're a winner, not a loser. The winner, you receive a gold-colored watch, lukewarm sheet cake, and a little party at age 65, and that's assuming that the finish line hasn't been moved to 70. Keith Weinhold 3:40 This is especially bad and prevalent in the United States, where you start out with just two weeks vacation. That's about the worst grind in the developed world. I really myself started questioning this lifestyle when I was a teenager, and this is because my older friends, sort of those that were getting into their late teens, they were relatable to me, and they started going down this path and telling me about it. And suddenly, they couldn't play baseball or tennis with me during the day because they started working during their summers. Now that's not so bad in itself, but stay with me. I also looked at the adults around me and noticed that most traded the majority of their waking hours for work that they didn't even like. Now, my dad was a good worker. He worked 7 a.m. to 3 p.m. faithfully Monday to Friday, and despite being a good worker, he certainly didn't love his job. As a teen, then I found it confounding that so many people were working Monday through Friday, primarily why, primarily to reach the weekend. Wednesday was celebrated as. Day, this sort of strange admission that the work week was something to climb over and survive. You're surrendering 50 weeks to earn two weeks of vacation. You're repeating that very bargain for 40 years and hoping you still have enough money, energy, and health to enjoy retirement. And what puzzled me most was where this was happening. We are not some impoverished nation with paltry resources and limited opportunity. This is the United States, the most powerful and perhaps the most prosperous nation in the world. Keith Weinhold 5:40 This is the part that I still can't work out in my head. Almost everybody falls into a narrow, rigid groove and grinds. Eventually, the groove becomes a rut. Then the rut gets a job title and a dental plan. Many even form their identity around this. Fear is the number one motivator that gets employees to show up at work. So then, do most people lead fear-based lives? It's almost insane. Sheesh! We have skyscrapers, interstate highways, world-class universities, abundant natural resources, advantageous geography, rule of law. We've got vast capital markets. We've got technology that sent people to the moon before I was born. Endless possibilities, but yet the standard life plan is to spend our most vivacious years doing something that we didn't even want to do. What a paradox! How could a nation create so much wealth while so many people have such little control over their own time? Even then, as a teenager, I remember thinking, "Gosh, there has got to be a better way than this system somehow. I didn't yet know the way, so I started going to college at age 18. Keith Weinhold 7:16 But this path put me on that same trajectory of get good grades, land a job, max up my 401k, which would reduce my salary, and work for four decades, and then cross my fingers and just somehow hope that promotions, inflation, taxes, a stock market that I couldn't control, and life itself would cooperate. I mean, that plan could kind of work, but your time is still doing most of the work. Your employer rents your time usually one hour at a time, and if you stop supplying the hours, then soon enough your income stops too. Capital compound. labor doesn't. The better path is to gradually separate your income from your time. That's what I began doing when, while I was working full time, I bought my first income-producing rental property a few years later, a few years after college, in fact, doing that on the side, divergent, black sheep. I was stepping out of the groove. Now I own an asset that created leverage and income, whether I'm working, sleeping, camping, climbing a mountain, or spending time with my family. So the goal then it's not to avoid hard work entirely. I mean, meaningful work that can even provide some purpose and achievement and pride. But what provides wealth? What are you going to do for that? Wealth is what happens when you're not working. Wealth is what happens when you're sleeping. Labor produces income. Assets create wealth. Grinding should be a season, even your contribution to society, but not your primarily financial strategy. So the bottom line is that we don't want to win the grind Olympics, income-producing assets help us build a life that we don't have to postpone. The entire conventional life plan, the whole thing, just never felt right to me. Intuitively and rationally, deep down, you know, think to yourself: Doesn't at least some part of you feel that way too? Thank God that I found real estate. I don't love it. I love what it does for me. You've got to love what it does for you. Keith Weinhold 9:54 One attribute that your income property gives you is control. So. With that in mind, I put together the top five ways to increase your rental property income countdown style from number five to number one. Since you do own an asset that you can control, so we're talking about giving your rental property a raise here, and you know your property does not even need to appreciate in order for you to make it more valuable, your property doesn't need to sit around waiting for the market to appreciate like it's waiting for a promotion from corporate or something, which always takes too long. You can manufacture more income yourself. So net operating income or NOI, it only has two moving parts. It is property income minus operating expenses. Push income up or pull expenses down, and you've effectively given yourself a raise. Better yet, on an income-valued property like a five-plus unit apartment building, every additional dollar of NOI can create far more than $1 of property value. So here are the top five ways to increase your property's income. Keith Weinhold 11:10 The fifth best way is to add ancillary income, because monthly rent it's not the only asset inside your property. Now, depending on what property type you have and what the local laws are, you can charge for pets, parking, storage, laundry, furnishings. You can charge for internet packages, utility reimbursement, reserved garages, upgraded amenities, or you can even charge in some cases for application, administrative, or lease break fees. The best ancillary income it provides something that the resident genuinely values. We're here to serve and give value to others. Importantly, it should feel like an option for your tenant with these things, not some toll booth placed between the tenant and their front door. We know how annoying it is to have a tip screen swung around and placed in your face. Even an additional 25 or $50 per unit each month that can become meaningful across several properties. The fourth best way is to cut your controllable operating expenses, and you know what most investors do, and it is easy to fall into this, and I certainly have too at times. You know, most investors they carefully negotiate the property's purchase price at the beginning, and then they spend years casually accepting every recurring bill, audit your expenses rather than just accepting last year's cost plus inflation. Keith Weinhold 12:49 So closely look at your property management fees, landscaping and snow removal, pest control, cleaning, trash service, water consumption, and any leaks that you might have. Common area electricity, repair labor and material markups, service contracts, and preventive maintenance. Gosh, I really lost a lot of money in pest control one time when the pest would just move from one apartment unit to the other, and we just couldn't get it trapped or stopped. Loyalty is admirable in marriage. It is less compelling when your landscaping company raises its price 14% every year. So solicit competing bids, consolidate your vendors where you can, install efficient fixtures where the payback period makes sense and where the break-even math works. But now, don't confuse expense reduction with maintenance neglect. Keith Weinhold 13:53 That is one danger. So you know, if you delay a $300 repair until it becomes a $3,000 emergency, well, that really doesn't increase your NOI. It merely makes this month's numbers lie. Now, as I tell you about this list, you might think sometimes, "Oh, I've heard of that one before. Okay, but yeah, are you actually doing it? The third best way to increase your property's income is to challenge taxes and shop insurance because property taxes and insurance they are really among your property's largest operating expenses. So therefore, if you get good at this, you can both increase your net income and you will have gained a new skill that you can apply later and elsewhere. Yet you know a lot of owners they treat property tax and insurance sort of like the weather. They complain about them and then they just assume that nothing can be done. Possible moves that you can make are appealing in excessive property tax assessment, correct inaccurate property records. You can compare insurance carriers as often as annually. Adjust your deductibles when it's appropriate. Be sure you remove redundant coverage. Make sure that there's no overlap there. You can add safety or resilience improvements that qualify for insurance discounts, and then at the same time, sometimes that improves your property's value. You can check the property's classification and claims history for any errors there. So you know every legitimate dollar saved that flows directly into your NOI, your net operating income. Remember, mortgage payments though they do not factor into NOI. Neither do major capital expenditures. Refinancing can improve your cash flow, but that does not increase the property's NOI, and that's what we're talking about today. But when it comes to property tax appeals, you remember a while back on the show, perhaps a year ago, I went into detail on just how you can do that. Keith Weinhold 16:00 Now we're up to number two. The second best way to increase your NOI is to raise rents intelligently, and really this is the most obvious strategy. But it isn't as simple as typing a larger number into your renewal letter and then just sort of hoping that your tenant doesn't notice. Bring rents closer to market without automatically chasing the absolute maximum. That can include gradual increases at renewal, premiums for upgraded units. How about a premium for the unit with the best view? If you have one of those, higher rent for furnished units, appropriate charges for garages or shorter lease terms. I mean, shorter lease terms, like a six month instead of a 12 month, that can get you a bump up in the rent. Be sure to eliminate any unnecessary concessions, like the first month's rent is free. Do you really have to continue to do that? And use better listing photos and copy to support higher rents. It's easy to have AI write some good snappy copy for you today. So the objective here is economic occupancy, not merely the highest advertised rent, because raising the rent $100, if that's going to create an extra month of vacancy that is stepping over dollars to pick up dimes. Know the market, understand the tenant, and make increases that improve NOI rather than merely improving the asking price for the REM. And the top way, the number one way to increase NOI is reduce vacancy and turnover. Yes, you might have heard that before, but it is still the most overlooked NOI lever, even though it's number one. An occupied unit at a sensible rent that often produces more income than an overpriced empty one. Keith Weinhold 17:58 The way to improve your occupancy is by you starting renewal conversations 60 to 90 days before that lease comes due. Respond quickly to maintenance requests. I mean, few things frustrate a tenant more than a ceiling that is leaked for a month. Pre-market an upcoming vacancy that you have. Start that process early. Complete your turns faster, screen residents carefully, and unless you're in an especially hot market, consider offering renewal incentives when turnover would cost you substantially more than doing that. So there are a bunch of ideas for reducing vacancy and turnover. Another one, more of a modern-day one, is for you to buy and operate new build property because tenants tend to stay in new builds longer. They love that feeling that no one has ever lived there before. Suppose a unit rents for $1,800 a month. All right. Well, then one vacant month costs you $1,800 before cleaning, repairs, utilities, advertising, and leasing expenses. So the true cost of that turnover could easily be three or $4,000. And when you consider that, then giving a good resident a $250 one time renewal incentive that doesn't look generous that looks profitable for you. Keeping a responsible tenant, you know that might be the biggest quote unquote rent increase available. Just simply keeping a responsible tenant because occupied properties produce income, and empty properties produce invoices. Keith Weinhold 19:48 Now that I've told you about the five ways to increase your property's income, let me give you some more motivation for this. It's about how $250 can become 50. $1,000. Suppose you select just a few of these five improvements, and say that that increases your NOI by just $250 per month. Okay, that's nice. That's cash in your pocket, and if you happen to apply it to a five-plus unit apartment building, since it's also valued on NOI. You take 250 bucks times 12. That is $3,000 a year at a 6% capitalization rate. Take 3000 divided by point 06. That is $50,000. You just created 50k of additional property value from only $250 of monthly NOI creation. Yeah, you are up 50k now, and here's the thing: you did not do anything that substantial. It's not like you added another story to a property, or you discovered oil underneath your parking lot, or you convinced a celebrity to move in. Okay, these are practical things that you can do in control. You simply operated the property better, and this forced appreciation relationship that applies most directly, though, to commercial and larger multifamily properties because those are the types that are valued based upon their income. A single-family rental or a duplex or a fourplex that is generally appraised primarily through comparable sales. So its higher NOI might not immediately produce the same increase in appraised value, but in either case, higher NOI it still means more cash flow for you, a stronger financial cushion, and a better performing investment. The bottom line here is that you can wait for the market to increase your property's value, or you can operate the property better and create value yourself, raise income, control expenses, and keep good residents. That is how you improve NOI without increasing your blood pressure. Keith Weinhold 22:10 Coming up on the next few shows, we're going to speak with the original co-author of the book Rich Dad Poor Dad. Yes, we had Robert Kiyosaki on here earlier this year, but we're going to talk with the co-author alongside Robert Kiyosaki. A lot of people don't know who that is. That is going to be interesting on another upcoming episode. The man that wrote the book on the 8020 rule called the Pareto principle, he will be here. That's where 80% of the results come from. 20% of the effort. So here on GRE, there's a lot of education, strategy, and mindset coming up straight ahead today. When stocks crash, what happens to real estate? That's next. I'm Keith Weinhold. You're listening to Get Rich Education. Let me ask you something: If you've worked hard to build wealth, is your money positioned to actually support your goals. A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. In full disclosure, I'm an investor myself. Keith Weinhold 23:27 What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts-they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call, or text family to 66866. That's family to 66866. What if you got your mortgage loans the same place I get mine. You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your prequal and even chat directly with President Caeli Ridge while it's on your mind. Start at ridgelendinggroup.com. That's ridgelendinggroup.com. Kirsten Tate 24:31 This is author Kristen Tate. Listen to Get Rich Education with Keith Weinhold, and don't quit your daydream. Keith Weinhold 24:49 Welcome back to Get Rich Education. I'm your host Keith Weinhold, and this is episode 625. AI songs are becoming more popular. Fortunately. AI podcast hosts-they really aren't that much of a thing yet, or else I might not be here. Thank goodness that listeners still want to hear from a real person. When stocks crash, what happens to home prices? Since 1980, there have been 10 or more major stock downturns. Guess how many of those cause national home prices to crash? Exactly zero. Now there was one pretty enormous housing decline, but that one started in housing. And what happens next? It reveals something that every real estate investor should understand a lot like real estate right now. Stocks are hovering near their all-time highs. Okay, both major assets, real estate and stocks, bumping up against all-time highs. There is a predictable rhythm about what happens to real estate when stocks crash. Now, when we look at stocks' seven big downturns that occurred just this century, as measured by the S&P 500, you know, first a lot of people think that stocks are overvalued here in the late 2020s. That is based on measures like the historic P/E ratio, the Shiller cape ratio, and the Buffett indicator. I mean, some investors are just disillusioned by how stocks' movement makes so little sense anymore. For example, when the latest labor number showed that 162,000 jobs were added in a month. That tripled expectations. I mean, people should have been like, "Hey, go USA! This is great. People are employed. All that. Nope. The stock market fell specifically in response to that. Why? Because strong employment increases the chances of higher interest rates, and sure enough, the Fed did then raise rates. Keith Weinhold 27:09 Oh, geez, what? So a labor market collapse is then bad for America, and that's good for stocks. Yes, that is how it works. That is just stupid. So, with that context in mind, let's see what actually happened to national home prices this century during all the major stock market downturns that were not caused by housing, and then we'll get back to housings. Okay, during the dot-com bust in 9/11, that whole period about 25 years ago, stocks again. This is all per the S and p5 100 crashed 49% Home prices were up 23% during that time. We'll get back to the global financial crisis shortly. During the 2011 debt ceiling crisis, do you even remember that stocks went down 19 percent. Home prices went down just slightly, 1 percent. During the 2018 Fed tightening and trade war sell-off, stocks were down 20 percent, a classic bear market. Home prices were up 1 percent. Then came COVID. In barely a month, stocks plunged a jaw-dropping 34% This was in 2020. It was like a flash crash. What happened to home prices then? They were up 1% just a little. So, are you beginning to see a pattern, or perhaps a lack of one here during 2022's inflation peak and Fed tightening bear market stocks fell 25 percent. Home prices they were up 4% during that time period, and then during the 2025 tariff sell-off, you might remember Trump called that Liberation Day. Stocks were down 19 percent. Home prices. were essentially unchanged. Keith Weinhold 29:06 All right, so there they were: six major stock market downturns this century, not one housing crash. All right, now let's turn the telescope around because 2008 was different since the crash was real estate induced, and it is the only time in the life of you or I or anyone alive today, even a 90-year-old, where national home prices took a significant fall. In fact, they were down 27 percent, and it took them a few years to fall that much. All right. Well, what did stocks do during this period? They fell even more, down 57% more than twice as much, 57% I mean, just imagine having a million-dollar stock portfolio and seeing its value cave in, down to 430k from a million. Okay, that's what really happened march 6, 2009, when the S and P hit its global financial crisis low, and that happened over a 17 month stock collapse. Okay, so what's really the summary? It is that in the six times that stocks led a price crash this century. Real estate held up, or it rose, and the one time real estate led the crash, stocks fell more than twice as much. Keith Weinhold 30:31 It was 27 %versus 57%. All right. Well, that is what's happened this century. But you know this cause and effect relationship or lack thereof, that didn't just begin happening in 2000. When we stretch the history back to 1980, which is Jimmy Carter, almost Ronald Reagan era days, stocks had four more big downturns. We had the Volcker Bear Market, the famous 1987 Black Monday stock market crash, the Gulf War sell-off, and the LTCM crisis. During those four stock crashes, home prices also either stayed resilient or they rose. All right. Well, all of this is because homes and stocks, you know, they just aren't connected by some push and pull relationship. Stocks reprice in seconds. Fear spreads. Algorithms sell, and billions of dollars can disappear before lunch. Instead, housing moves more like a cargo ship that you're trying to turn around in the Mississippi River, it can take a long time. Housing transactions take months. Prices depend on local supply and local incomes, and mortgage availability, and whether homeowners are actually forced to sell. Housing provides something that every human actually needs and cannot be easily disrupted by AI. I mean, AI still cannot download a three-bedroom house onto a vacant lot. And of course, during any stock crash, what else happens with real estate? Your rent just keeps coming in as well. So the bottom line here is we're learning from history rather than having a hunch again. Home prices don't react to stock market crashes. Stock crashes and housing downturns are different events. Keith Weinhold 32:32 A falling stock market it can eventually weaken consumer confidence. In in a severe recession, some of that can trickle in and affect housing, but history shows that a stock crash alone has not caused national home prices to fall. When stocks scream, real estate just kind of shrugs. Now, as we get back to talking about today, with real estate being cash flow challenged, you usually need a deal in order to make the numbers work. And as we know, for more than two years now, it has been wise to buy new build property and have that home builder buy down your mortgage rate rather than getting a property price discount. And do you realize that it actually works out better for you in almost every case for you to get your rate bought down than it is to get a discount. Yeah, it is often substantially better. Let's just think about an example. Say you're putting a 20% down payment on a 300k property at a seven and a half percent mortgage rate. Okay, let's compare your seller discounting the purchase price by 20k versus them instead using 20k to buy down your mortgage rate. All right, in the first scenario, let's call it then a purchase price reduction. The seller reduces it from 300k down to 280k. Your monthly payment would be 1566 $1,566. All right. Well, then your monthly savings from the price discount would be $112. You would also need 4k less for the down payment. Okay, 112 bucks a month is helpful to you. Keith Weinhold 34:18 That might buy you dinner for two at the Olive Garden or something, at a wildly overpriced airport convenience store. By the way, this is a bottle of water and one almond, 112 bucks. Okay, but now let's compare it with the second option. If instead of a price discount, you pay the full 300k and use the 20k as a seller credit, a credit from the seller, and you use that to permanently buy the mortgage rate from seven and a half down to five and a half percent. In this case, even though it's a larger amount financed, your monthly payment is no longer 1566. It's just 1363, so your monthly savings is no longer 112 bucks. That Olive Garden dinner for two, it is 315 bucks. So therefore, using the seller credit instead of reducing the purchase price that ups your monthly cash flow by about 203 bucks. All right, and this was just an illustration. It's not a universal lender rate sheet carved into a stone tablet. But the larger lesson remains. Okay, terms are often more important than price. Negotiate the financing. That is the lesson. And of course, you can try to use this most anywhere with any seller, but it's been especially popular with American home builders for two plus years now. Keith Weinhold 35:47 The bottom line is that the best deal isn't always the property with the lowest price; it is the one with the best financing, and it's one of the strategies that Mid South Homebuyers is going to offer on Wednesday night's webinar just two days away, and there's no negotiation needed. They are offering this, and it's where I'm going to be appearing live, and you're invited to join us from the comfort of your home or a coffee shop or wherever you are. So we're talking about properties in Memphis, Little Rock, and North Texas. New build properties for as little as about 200k, and some fully renovated resale properties for as little as 150k, and even less than that. Now, low price isn't reason enough to own an income property, but it's the fact that you get a strong rent in a stable market to support that, and they're offering what they call their triple five terms. They'll buy your mortgage rate down into the fives and provide property management for just a 5% fee for five years. And I just learned that for attendees of Wednesday night's event, they will even announce a promo code there, and you will get triple five terms for life on both financed and cash deals. Keith Weinhold 37:12 And you know, I've got to say that when I began in real estate investing, I wish that any of this would have existed. Like when I began, I wish there even would have been new build property available. They just didn't even have that for income property when I started out. And the fact that it's managed for you from day one, I didn't know about that when I started out. I thought I had to invest only in my home market and then manage it myself. And here you get investor advantaged geographic markets, and then if that's not enough, you get that rate buy down into the fives and property management costs. It's basically cut in half to help improve your property's cash flow, and you can almost think of this as lifetime cash flow. You get to control a sustainable business model that's resistant to AI disruption, and yeah, it's sustainable. I mean, people will pay you to live there. That has happened for centuries. It's sort of the opposite of a cryptocurrency that will not exist in two years. It happens Wednesday night. You'll get to see me live along with the renowned providers from Mid South Homebuyers and their properties and their generous incentives and all the new AI investment that's acting as a tailwind coming into Memphis. Registration is free at getricheducation.com/midsouth. It's 8p.m. Eastern on Wednesday night. I'll see you there, getricheduceducation.com/midsouth. Until next week, I'm your host Keith Weinhold. Don't quit your daydream. Speaker 2 38:57 Nothing on this show should be considered specific, personal, or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively. Keith Weinhold 39:25 The preceding program was brought to you by your home for wealth building. Getricheduceducation.com

Keith welcomes back macroeconomist Richard Duncan of Macro Watch to examine where mortgage rates are headed and what's driving them there. Duncan explains how the U.S. shifted from capitalism to what he calls "creditism" after the dollar left gold in 1971, and why today's AI investment boom, rising defense spending, and a $40 trillion national debt are all pointing inflation and interest rates in the same direction. He also makes the case for rental property on land as a long-term inflation hedge, and answers a question many have asked: if the government can print currency, why does it collect taxes? Episode Page: GetRichEducation.com/623 For access to properties or free help with a GRE Investment Coach, start here: GREmarketplace.com GRE Free Investment Coaching: GREinvestmentcoach.com Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: [email protected] Invest with Freedom Family Investments. For predictable 10-12% quarterly returns, visit FreedomFamilyInvestments.com/GRE or text FAMILY to 66866 Join Mid South Home Buyers' one-time, free live webinar featuring Keith Weinhold on September 30 at GetRichEducation.com/MidSouth to learn how Memphis' economic expansion could create new real estate investment opportunities, and have your questions answered in real time. Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review" For advertising inquiries, visit: GetRichEducation.com/ad Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— GREletter.com Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Complete episode transcript: Keith Weinhold 0:01 Welcome to GRE. I'm your host Keith Weinhold. You're going to get a good idea of where future mortgage rates are headed as we're talking to one of the world's most brilliant macroeconomists today. Will AI be more inflationary or deflationary? And the profundity of how we're on the brink of moving into a completely new economic system today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. In September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Home Buyers, the largest turnkey company in Memphis with more than 6000 homes under management, for a free live webinar the likes of which I've never done before. We're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth again. that september 30. Don't say we didn't tell you. Save your spot at getricheducation.com/midsouth. Speaker 1 1:34 You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education. Keith Weinhold 1:50 Welcome to GRE from Lancaster, Pennsylvania, to Lancaster, California, and across 188 nations worldwide. I'm Keith Weinhold. You're listening to Get Rich Education, and I really appreciate that you're here. Yes, those two cities, though spelled the same, are pronounced differently. Framing this entire episode today with our brilliant guest, you'll learn which direction future mortgage rates are probably going to move, and it's decidedly either going to be higher or lower. You'll get a clear answer. Now I've said that trying to predict mortgage rates definitively is foolish. We're only talking about probabilities today. Look, have you ever wondered if the government can just print its own currency? Then why do they have to collect taxes from us. We're going to get that answer today. Back in 1971, the U.S. economy left a system of capitalism, in fact, and embarked on a journey of creditism as defined by today's guest. Well, now we're about to leave creditism. You'll learn what is poised to replace it, and it is an AI-fueled answer. You know, to prep you with some context today, I've said it here before. But when you start talking about the enormity of a national economy, the words billion and trillion start to get thrown around a lot. A trillion seconds ago, you know how long ago that was. That takes you further back than the Roman Empire, because a trillion seconds is 31,700 years. Well, 31,700 years ago, that is just about as far back as when the plains of Europe were being roamed by Neanderthals. Yeah, that was a trillion seconds ago. Coming up on the show here, the man who wrote the book on the Pareto principle 30 years ago. That's the 80-20 principle, where 20% of your effort yields 80% of the results. We'll talk to him and learn how those insights can improve your life on a different upcoming episode. Keith Weinhold 4:08 Here, the book Rich Dad Poor Dad was originally written by two authors. One of those two was Robert Kiyosaki. We had Kiyosaki on the show here with us in June, and by the way, the New York Post recently wrote an article, and they cited the Get Rich Education podcast in how Kiyosaki revealed on the show here that he is 1.2 billion dollars in debt. You can find that in the September 1st edition of the New York Post. That's the June 1st episode of the Get Rich Education podcast that they're citing. Well, a lot of people they don't know who the other author of Rich Dad Poor Dad is, but we're going to have her here with us on the show soon. So some really fascinating episodes coming up. Let's meet today's guest. Returning this week is one of the foremost macroeconomic minds in the world. He was this show's first ever guest nearly 12 years ago on episode seven. A prolific author, he publishes the popular video series Macro Watch at RichardDuncaneconomics.com, and he's really influential. For example, not long ago, he presented his economic policy proposals to congressional members of the House Ways and Means Committee. Hey, it's a warm Get Rich Education. Welcome back to the incomparable Richard Duncan. Richard Duncan 5:39 Thank you, Keith. Thank you for having me back on. Keith Weinhold 5:42 I don't know if you and the audience are ready for this. This is some perspective. It recently made news when the U.S. hit its national public debt milestone of $40 trillion. When Richard made his GRE debut here in November of 2014, it was $18 trillion. That national debt has more than doubled since you were first here, Richard. Richard Duncan 6:07 That's right. The government has been playing probably the leading role in keeping the economy growing, and a couple of times since then has played the sole role in preventing a new Great Depression in the aftermath of the crisis of 2008 and during COVID, it's the massive government budget deficits, often more than a trillion dollars a year. Last couple of years, it's been 1.8 trillion dollars. That's been driving the economy, and whenever it needs some additional support, the Fed steps in and creates a few trillion dollars here and there, and combined they've been keeping the economy growing and, in fact, booming. And wealth has absolutely exploded as a result of the government spending and the Fed money creation. In 2008, the total wealth of all the Americans net worth $60 trillion. Now, it's tripled to $180 trillion. That that is a direct result of the government's intervention through budget deficits and paper money creation by the Fed. Keith Weinhold 7:14 I will call that the world's least desirable investment portfolio minus 40 t. That is one way to think about it, but when you bring up interventionism, you know something I shared with the audience about a month ago, Richard. It is just remarkable to think about all the crises we've had just since 2020. We had COVID, we had Russia's invasion of Ukraine, we had Israel, Gaza. We had tariffs. Now we've got the war in Iran, and what is the result of all this? Largely due to government interventionism. Oh, both the stock market and real estate market in the U.S. are near all-time highs. Richard Duncan 7:54 Who would have imagined? But things work very differently now than they did in the old days when money was backed by gold, and the Fed and the government played a much smaller role in the economy. It's a different world now. That was capitalism. This is creditism. Our new economic system is driven by credit growth, and whenever necessary, the government steps in with massive budget deficits, and the Fed steps in with massive money creation to make sure that credit keeps expanding and the economy keeps growing, because if credit doesn't keep expanding, if it even dips a little bit like it started to in 2009, then the whole bubble implodes and we repeat the 1930s Great Depression, probably followed by what happened in the 1940s. Keith Weinhold 8:39 This is interesting. When you were first here 12 years ago. You talked about how society isn't so much capitalism that it's creditism, and you expounded on that. And before we're done, I know that we have now morphed into a new ism, post-creditism that Richard is going to share with us, it's fascinating. But Richard, since you were last here, the Iran War is new. It's been going on for over six months now. So I'd like to get your thoughts on that, and principally, if the Iran War is going to create lasting inflation or only a temporary energy spike. What are your thoughts? Richard Duncan 9:20 Let's broaden this out. I know that your listeners are very interested in in real estate, and of course that's very impacted by interest rates. And interest rates are impacted, of course, primarily by inflation. So it is true that the Iran war is pushing up energy prices, and that's pushing up inflation. It's not just Iran alone. Before that, we had trade tariffs, and that's pushing up inflation. And on top of that, we've simultaneously got this extraordinary AI investment boom, and the investment by the hyperscalers is just mind-boggling. The four biggest hyperscalers-Amazon, Alphabet, Microsoft, and Meta-they're expected just the four of them to invest something close to $750 billion this year. 750 billion, just four of them. Now, to put that into perspective, the U.S. military, in one year, the most recent year, only spends half that much on procurement and research and development, roughly 320 billion. You've got these four hyperscalers spending twice as much as the U.S. military does on procurement and research and development. That is just hard to wrap your mind around, and of course, that's pushing up everything from the cost of memory chips to electrical equipment, the cost of electricity itself, power generation equipment, and all the kinds of materials that go into building data centers. So that's another source of inflation. And then there is this wealth effect that I just referred to a minute ago. Wealth has tripled from $60 trillion to $180 trillion since 2008. All that wealth is giving a lot of rich people a lot of money to spend on a very large scale, and that also is inflationary. So all of those things are inflationary, and none of them seem to be going away in the immediate future. Now, on top of that, the inflation is not the only thing that is affecting the interest rates. Other things are affecting the interest rates as well. For instance, the budget deficit this year looks like the U.S. budget deficit is going to be quite close to $2 trillion. So that will be $2 trillion of government borrowing, and this doesn't look like it's going to go down anytime soon either. President Trump is requesting $1.5 trillion for the total defense budget in fiscal year 2027, which starts in October. That's up from just $900 billion in fiscal year 2025, so that's a huge increase in military spending, which makes the percent- Keith Weinhold 9:20 Increase plus, y Richard Duncan 10:52 Going to keep growing, and that spending will be inflationary as well. But so the government is going to have to borrow, so the demand for money from the government is enormous, and as I've just mentioned, because of the AI boon, the hyperscalers and many of the other companies in the AI industry or related to the AI industry, they're also tapping the bond market on a very large scale. So demand for borrowing from these AI-related companies, the demand is pushing up interest rates. This is not directly related to inflation, so you've got a lot of demand for borrowing from the government and from the private sector related to artificial intelligence primarily. So that's on the demand side for money, and on the supply side, well, the United States is not making a lot of new friends these days. We seem to be losing friends pretty quickly, and many of the people who were very enthusiastic about buying American government bonds in the past are becoming increasingly reluctant to do so. Most of them still are. Most of them don't really have any viable options, but on the margin, there are fewer friendly buyers of our debt, and so fewer people willing to buy the debt also puts upward pressure on U.S. interest rates. So recently, the 30-year U.S. government bond hit a 19-year high at 5.33% That's a very high number, and this has spooked the Treasury Department. Treasury Secretary Besant has begun doing some very unusual things that suggest that he's very concerned. He has helped stop the yen from weakening by selling some euros that the U.S. government owned and buying yen. He did this to make the yen stronger, and this meant that Japan wouldn't have to sell its U.S. government bonds in order to have dollars to use to buy yen to make the yen stronger. So that was a strange move. Richard Duncan 9:20 And then more recently, he's announced that the Treasury Department is going to start buying twice as many long-dated bonds as it has been doing. Each operation now, the Treasury Department has been buying $2 billion worth of bonds at the long end and financing it with short-term borrowing. So borrowing at the short end, the say two-year bonds, which have a much lower interest rate, and using that money to buy 10 or 30-year bonds that have a higher interest rate, in order to push up the bond prices and push down the bond yields at the long end, to try to hold down the 30-year bond yield and the 10-year bond yield, which of course directly affects the mortgage. This is beginning to seem like there's some degree of, well, let's call it perhaps not panic, but deep concern in the Treasury about how high interest rates in the U.S. are going, and just moving forward with this idea, all of these pressures, the inflationary pressures are not likely to go away anytime soon. The demand for borrowing is not going to go away anytime soon. So there's going to continue to be this upward pressure on interest rates. And I think ultimately, what we are going to see is another big round of quantitative easing from the Fed. The Fed is going to have to step back in and announce that it's going to create a great deal of money one more time, and use that money that it creates to buy government bonds to push up their price and to drive down their yield. And we shouldn't forget that already the Fed is currently printing, creating money. It launched a new program. What is it called? Reserve management purchases. This was a program they announced in December last year, where they were just going to create some money and inject bank reserves into the financial system, so that they could manage reserves at a good level, so everyone would have plenty of liquidity. Just since December, they have created $210 billion. This is kind of going under the radar, but $210 billion since December is not an insignificant amount of money. Richard Duncan 14:49 If the budget deficit this year turns out to be 2 trillion, then that's financing 10% of the government's budget deficit, right? More than 10% So we've already got a significant amount of money creation by the Fed going on currently, and that's not enough to prevent the yields from moving sharply higher. So I think what we're going to get is another much bigger round of quantitative easing in the not too distant future, and that's going to have a lot of ramifications. Keith Weinhold 17:00 That's a really interesting insight, and Richard, one word keeps popping into my head as we have this discussion. Okay, inflationary pressure correlates with higher interest rates, sure, but how much are these high bond yields, which flow right over to our mortgage rates, a result of an erosion in trust. I'm thinking about trust Richard Duncan 17:24 to some degree, yes, but not overwhelmingly. The reality is, at the end of the day, there is a certain amount of money in the world that has to be invested somewhere, and that is the most important fact to understand. There is a pool of money; it keeps getting larger, and it has to go somewhere. And U.S. government bonds are considered the safest place for it to go. For instance, the United States has a very large trade deficit with the rest of the world. For the last two years, the current account deficit, which is more or less the trade deficit, has been 1.2 trillion dollars a year. It's easier to understand it as a trade deficit. That's been throwing off 1.2 trillion dollars into the surplus countries. The surplus countries sell things in the United States, countries like China and Vietnam and all the others. They sell things in the United States that they make at home. They get paid in dollars. They take their dollars back home to China and Vietnam and all the other countries, and what do they do with the dollars? They own dollars. They've got to do something with those dollars. They're getting 1.2 trillion more dollars every year. Now, the thing they do with it primarily is they buy treasury bonds with it, and so there is an inherent and growing demand for treasury bonds. You may be thinking, okay, they could take those dollars and they could convert them into euros. That's true, they could, but whoever they buy the euros from, they then own dollars, and they would need to buy U.S. dollar-denominated assets with them. The main driver behind the buying of Treasury bonds is just the fact that there are so many dollars in the world, an increasing amount of dollars outside the United States that need to be invested in U.S. dollar-denominated assets. People can lose confidence in "quote unquote, but what are they going to do with their dollars? It has to go somewhere, and so it ultimately ends up going round and round, and an enormous amount of it ends up in U.S. Treasury bonds, and that's not going to change so long as the U.S. has a very large trade deficit with the rest of the world. The rest of the world is going to keep accumulating dollars for that reason, and they're going to keep accumulating Treasury bonds for that reason. Keith Weinhold 19:44 Well, what do these effects mean for real estate, Richard? I mean, which force you think will ultimately win for housing here with this increased inflationary pressure? Is it more of a damaged affordability problem, or do we see rising? Placement costs that continue to help float real estate values up. Richard Duncan 20:05 Real estate prices, home prices, have not been performing very well over the last year to two. Pretty flat, unlike in prior years, immediately after COVID when they were booming. I suppose that's what we're going to continue to see for some time. If interest rates remain high, the affordability is not there. But if we do get this new round of quantitative easing, which I think is a real possibility, then that will effectively push down the interest rates, making home affordability better. And at the same time, by creating more money, that does push up asset prices across the board. So over the long run, I do believe that real estate is a very good investment, and also it can be a very good investment from the point of view of providing diversity in your portfolio. I'd like to focus in particular on it can be an inflation hedge. So, if you buy a house and use a say a 30-year fixed mortgage, and then we or a 15-year fixed mortgage to pay for a significant part of that purchase, and then we do get inflation, then the inflation eats away your mortgage. Your mortgage evaporates because of the inflation, so in that way you're somewhat protected from the risk of future inflation by having inflation destroys your debt. In other words, so that helps. So I do believe that buying houses, I think rental income is a very good investment, particularly houses on a piece of land buy the house with a fixed rate mortgage. You rent out the house, and over 10 to 15 years, the house pays for itself, and it keeps appreciating in value over time. Decade after decade, it will become increasingly valuable over the long run, and you'll have also a supply cash flow, and you'll have this inflation hedge that I just described. So I think owning rental property that is on land, I'm not so keen on buying condos. There's no limit as to how many condos can be built in the air, but there is a limited amount of land in the world, and so land is as good as gold because if gold goes up; the land will also go up for the same reasons. So I think owning rental property is a very important part of having a broadly diversified portfolio, which is usually the best thing for most people to do to have a broadly diversified investment portfolio. Keith Weinhold 22:37 Yeah, in this era of both war and increased interventionism, yeah, we still have a resource here, real estate that is scarce, that is necessary, and is built with this basket of goods and commodities constituting that replacement cost. Richard Duncan 22:53 I agree. Keith Weinhold 22:55 Well, Richard and I have a lot more to talk about when we come back, including what phase of the economy that we're in post-creditism and a lot more. You're listening to Get Rich Education. Our guest is the publisher of Macro Watch, Richard Duncan. I'm your host, Keith Weinhold. Keith Weinhold 23:12 What if you got your mortgage loans the same place I get mine? You sure can at Ridge Lending Group NMLS 42056. 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Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call, or text family 266866. That's family 266866. Robert Helms 24:44 Hey everybody, it's Robert Helms of the Real Estate Guys Radio Program. So glad you found Keith Weinhold and Get Rich Education. Don't play your daydream. Keith Weinhold 25:04 Welcome back to Get Rich Education. I'm your host Keith Weinhold. We're talking with Richard Duncan. Check out him and his work at RichardDuncanEconomics.com. So much interesting stuff has happened in the macroeconomic world since we last had him here with the Iran War, with the AI arms race heating up, and with hitting that milestone of $40 trillion in total public national debt. Which, by the way, that $40 trillion-that is more than the combined debt of Germany, Japan, France, Italy, the UK, and Canada. That's basically the entire rest of the G7 just to try to get your head wrapped around that $40 trillion number, and you know, Richard, when it comes to the government, their income and their expenses and their assets in their debt, some wonder, including me, if the government can just print its own currency, then why must they collect taxes from us? Richard Duncan 26:04 Okay, well, to understand the answer to that question, it's necessary to understand that it wasn't always possible for the government to print its own currency. Up until 1968, 1971, the Fed was legally required to back the dollars it created with gold, and the United States had the obligation to allow other countries to convert the dollars they accumulated into U.S. gold. So up until then, that wasn't a possibility for the government to finance its spending by money printing. And so, over the centuries that preceded, the government would tax the people to obtain the money that it needs for spending. So imagine today: here we are. The government now is spending about $7 trillion a year, and its tax revenues are about $5 trillion a year. So if it suddenly said, "Okay, we're not going to tax anyone anymore, that would mean that people would have an extra $5 trillion to spend, and if the people started spending $5 trillion, we would have hyperinflation, because there's only a limited amount of industrial capacity in the United States, or even in the world for that matter. It couldn't absorb a $5 trillion of additional spending from households and businesses, so it's not that they can't technically create the money as much money as they want to pay for everything they want. The constraint is not money creation technically; it's the inflation that it would produce if they just stopped taxing everyone and just created money instead. So that's the reason they can't. Keith Weinhold 27:46 Just slowly taper it away and give people some income tax relief. Why can't they do that? Richard Duncan 27:52 Well, that's what they've been doing. Taxes are far lower now than they were under when President Reagan took office, and that's one of the reasons we have $40 trillion in debt. Keith Weinhold 28:03 Okay, but that is how the income and expenses look on an annual basis, right, Richard? This is how I think of it. Like the United States basically has 5 trillion in annual income, much of it from personal tax collection, and 7 trillion in annual expenses. That's how we get to the annual deficit of about 2 trillion, which rolls into that $40 trillion of overall debt. Richard Duncan 28:30 That's right. What you said is correct. But we would have much more than $5 trillion income from taxes had the government not reduced the tax rate so often and so radically, starting in the early 1980s under President Reagan, if taxes hadn't been cut so sharply, we wouldn't have a two-trillion-dollar budget deficit, $40 trillion of government debt. So they've already been tapering the amount that they tax by cutting tax rates very sharply over the last decades, Keith Weinhold 29:02 I guess a lot of people, admittedly me included, haven't been thinking about it that way. Maybe because it's painful, and I do write checks to the IRS. But when we talk about this propensity for continued inflation, one component of this is what's happening with the AI arms race, and I know you've looked at this closely. You know, because one thing I think about is, well, wait, will the AI arms race actually be deflationary over time because it lowers production costs and makes us more efficient, or is it going to be inflationary because it requires enormous capital and electricity and infrastructure in the building of these data centers. So you know I can see it going either way with the AI arms race, inflationary or deflationary. But since you studied it a lot, including talking about it on macrowatch, tell us more about the AI arms race and what this all means, Richard. Richard Duncan 29:59 So yes. On your point that you just made, in the short term, it looks like the AI boom is going to be inflationary. Yeah, it's driving up electricity prices, land prices, and all of the things that we discussed before. Everything that goes into making artificial intelligence intelligence, including memory chips, which drive up the cost of your iPhone and iPad. So it's inflationary in the short run, but over the long run, it could probably and probably will be quite disinflationary or even deflationary. I think that's several years away. Now, moving on to the next question, the AI arms race. I think it's very helpful to understand the world around us by putting it in the context of how our economic system has evolved since dollars ceased to be backed by gold. 1968, the Fed was no longer required to back dollars with gold. 1971, President Nixon said, "Sorry, Europe, we we said we would let you convert your dollars into gold, but we changed our mind and you can't. So after that, there was no longer any gold backing for the dollar, and here are a list of things that have happened as a result of that change. Our huge trade deficits couldn't have happened if the dollars were backed by gold. The huge budget deficits that we have couldn't have happened. The Fed couldn't have created trillions of dollars through quantitative easing. Inflation rate has fallen from the 1980s, from the the mid teens to well below the Fed's 2% inflation target for most of the last 20 years, and wealth in the United States has exploded, as I mentioned, from 60 trillion to 180 trillion. That wouldn't have happened if dollars had remained backed by gold because credit has exploded. Total debt or total credit, two sides of the same coin. Total debt in the U.S. It's government debt, household debt, corporate debt, Fannie Mae, Freddie Mac debt, all the debt. It first went through $1 trillion in 1960. Now it's 110 trillion. So 110 times increase in my lifetime in total debt. That wouldn't have happened if dollars had remained backed by gold, and because of all of that credit expansion and the massive trade deficits we had with the rest of the world through globalization occurred, and that allowed Asia to industrialize, and Asia wouldn't be industrialized as it is now. China wouldn't be an economic superpower as it is now had dollars remained backed by gold, because it wouldn't have been able to grow through export-led growth. And so, China, instead of looking like it does today, it would look like it did in 1970, basically being a very poor third world country, and globalization has pulled hundreds of millions of people out of poverty. Richard Duncan 32:47 They would still be in poverty had dollars remained backed by gold. The Soviet Union probably would still be around because the U.S. under President Reagan wouldn't have been able to to spend so much on the military that it bankrupted the Soviet Union trying to keep up with us, and finally, China wouldn't be the national security threat that it's become now because it wouldn't have had a trade surplus and it wouldn't have had any economic growth to speak of for the last 50 years. That's the world that we're living in now. The world we live in now is the direct result of dollars no longer being backed by gold, and to understand the world around us, you have to understand that that's the starting point. Now, coming to your question, this explosion of wealth that has been created under the system that I call creditism-we did have capitalism. It was driven by saving and investment, Capital accumulation, hence capitalism and investment that drove capitalism. That's not how our system works. Our system is driven by credit creation and consumption, and more credit creation and more consumption. That's creditism. It used to be driven by private sector credit growth, but the private sector became too heavily indebted in 2008, and they blew up, and that almost resulted in the complete collapse and bankruptcy of every bank in the United States and probably most of the banks around the world as well. So the government had to step in, and since that time, it's been government borrowing primarily. Richard Duncan 34:17 This driven creditism and kept credit expanding with the help of the Fed, so this has been the evolution of creditism and has produced extraordinary amounts of wealth. So it's had two consequences that we need to focus in on now. For one, I've mentioned already, it turned China into an economic superpower, which is now on the verge of overtaking us, not just economically, but also technologically and militarily, it's become an extreme national security threat to the United States. But the second thing that has occurred, the creation of all of this wealth has provided the funds that have allowed a. Technological revolution to occur so quickly, this AI revolution that we're now living through, that is the direct result of the ample liquidity that has been created and flowing around the world, originating largely from the Fed's printing press and the government's budget deficits. That's created trillions and trillions and trillions of dollars of wealth that wouldn't have existed otherwise, and that wealth has gone into funding this development of data centers and the technology that's created the artificial intelligence. Now we are experiencing this AI revolution, and it's become quite apparent to everyone that whoever wins the AI arms race is going to rule the world. We're on the verge of machines becoming more intelligent than humans, and then after that point, through self-training and self-improvement, going on 24 hours a day, they're going to become exponentially more intelligent than humans very quickly, so whoever wins this race is going to have dominance of every other country in the world. So, as creditism has evolved, it has created a national security threat in China and has created artificial intelligence. And as a result of the two combined, we now have this artificial intelligence arms race with the United States that must win. That's why President Trump is calling for a 1.5 trillion dollar defense budget. Richard Duncan 36:30 So this is one of the main themes that MacroWatch has been focused on this year. I've done a series of videos on the new defense spending boom, looking in one video at the traditional titans of defense like Lockheed Martin, RTX, Boeing, in another video looking at the new up-and-coming Silicon Valley challengers in the defense industry, companies like Andrel, Palantir, and most important of all, SpaceX. This is now the driving force in the economy. the The absolute necessity of winning this AI arms race is going to require much greater government spending on the military, and it's going to require what we're seeing extraordinary amounts of money being invested in developing artificial intelligence because whoever gets there first wins, and whoever doesn't is going to be subjugated by the winner. So that's where we are. So that brings us up to we've been discussing the change from capitalism into creditism, and we've seen how creditism has evolved from being first driven by private sector credit to later being driven by government sector borrowing and spending, now leading to this AI arms race, which I think we're now moving toward a different kind of economic system beyond creditism. So let me back up just a minute and say that economic systems are best defined by the constraints that limit what they can do. So we've been talking about capitalism. Capitalism's main constraint was the requirement that money be backed by gold, and when that constraint, when that gold-backed money constraint was removed, the constraint was gone. The economic system evolved into a different kind of economic system. Creditism has created extraordinary amounts of wealth and growth since early 1970s. This is not the first time economic systems have evolved. If you look back through history, there have been many different kinds of economic systems. They've all been defined by the constraints that binded what they could do. If you go back to hunter-gatherer economic system, that economic system was constrained because the people didn't have tools for cultivation or any way to store the food that they created for long-term storage, but once they developed that those tools and the ability to store food, those constraints were removed and they evolved into a different kind of economic system. Ultimately, into feudalism. Feudalism was an economic system that was constrained by very poor roads, so there was very little transportation. There were no banks, so no banking system or credit, and there was very limited legal social mobility. Richard Duncan 39:28 But eventually, cities developed, and because of cities, trade flourished, and that removed the constraints that had defined feudalism. Okay, so fast forward, capitalism was constrained by gold-backed money. When gold was removed, we moved into creditism. Now here we are in creditism, late-stage creditism, and we're seeing this phenomenal expansion of artificial intelligence. So every economic system throughout history has. Had two constraints in common. There have been labor constraints, a limited labor supply, and there has been the constraint of limited human intelligence. We're now, thanks to artificial intelligence, on the verge of removing those two constraints that have limited every economic system up until today, when artificial intelligence is embedded in humanoid robots, that's going to remove the labor constraint. We will no longer have any labor constraint. Robots will be able to produce all the labor and then some that's required. So there goes the labor constraint, and when we hit superintelligence, that's going to remove the constraint of human intelligence that has bound economic systems. So those have been the two primary binding constraints on every economic system so far, and they're just now about to be removed by artificial intelligence. We're moving into a new era without intelligence constraints and without labor constraints, and this is going to radically change everything. When those constraints are removed, creditism is going to evolve into an economic system that's no longer driven by credit creation. It's going to be driven by intelligence creation, knowledge creation, or an explosion of cognition. So I call the new system that we're moving toward cognitism, because rather than being driven by credit as creditism is, it's going to be driven by exponential expansion of intelligence or cognition, and it's probably going to create undreamt of wealth, but it's going to completely change from bottom to top everything about the world and society and social relations that exist today, and that is what we're very quickly moving into over the next 10 to 20 years. That that's where we're going to go, and I believe it deserves a new name. So I've coined the term cognitism to describe this new economic system. The post-creditism world is cognitivism. Keith Weinhold 42:12 Wow, this is massive. Ever since we met, you talked about creditism, and really, that's the economic system that we live in, not capitalism, so we're on the brink again of moving from creditism into cognitivism, because oftentimes these forces and their change are defined by having the constraints removed, and we're on the brink of removing the labor constraint and the human intelligence restraint from creditism to move us into cognitivism over the next 10 or 20 years. I'm just reviewing what you said as I'm thinking this through, Richard. Talk to us at least a little about what the ramifications are for us, just everyday people and investors with this cognitimism economic system. Richard Duncan 43:02 It's very difficult to guess what the consequences are going to be. They're going to be not only economic, but they're going to very quickly become political, and the political consequences are difficult to guess how they will play out. But it does look like when robots can do all the manual labor, and machines can do all of the intellectual work on a much more accurately, much more rapidly, much more flawlessly than humans can. There won't be any need for humans to have work unless legislation is in place to ensure that they do, and if they don't have work, then they're going to not have any income. And if they don't have any income, they're going to start being very unhappy, and they're going to start rioting, and governments are going to begin to fall, and we don't know how that's going to play out. So there's going to have to be arrangements made to ensure that people do have enough income to benefit from all of the extraordinary wealth that could be created through limitless labor and limitless intelligence, but to work in a way that can satisfy our wildest dreams and beyond our wildest dreams is going to be a matter of restructuring the political economy, if you will, to ensure that people benefit from this technological revolution that is now speeding up. Keith Weinhold 44:30 Yeah, I would say all we do know is we don't know and how it's going to turn out. But you know whether it's been tractors replacing horses or whether it's been the advent of the assembly line, or whether it's been the advent of the internet, people always say it's going to destroy net jobs, and historically, it really hasn't. Richard Duncan 44:53 You're right, but the replacement of horses with automobiles didn't really work out so well for the horses. Keith Weinhold 45:00 So, is there any way we can think about this in order to stay nimble as investors and everyday people, Richard? As we move into cognitism. Richard Duncan 45:10 Absolutely, everyone needs to subscribe to Macro Watch, and they'll be able to follow it very closely there as I map it out as it unfolds from month to month. Keith Weinhold 45:22 They should, and it's fascinating, and you've really been on the cutting edge of that. Tell us more about subscribing to Macro Watch, something that a lot of listeners should be interested in. Richard Duncan 45:33 So my background is has been in finance. I started working in Hong Kong in 1986 as a securities analyst, I later on became an economist and then a strategist. I worked for the World Bank for a couple of years in Washington. I was the head of global investment strategy in London for ABN AMRO Asset Management. So my background is in finance, and I have spent most of my career living in Asia for the last 40 years, primarily in Asia. Along the way, I've written four books. The first one was the Dollar Crisis back in 2003. The most recent one was The Money Revolution in 2023. So my background is in finance. But 13 years ago, I launched Macro Watch. Macro Watch is a video newsletter. Every couple of weeks, I upload a new video. It's essentially me making a PowerPoint presentation discussing something important happening in the global economy and how that's likely to impact asset prices. So it's essentially become a compendium of the global economy. Essentially, everything that has happened in the last 13 years at the macro level that matters is discussed in these macro watch videos. For instance, there is a complete history of everything the Federal Reserve has done since it was founded in 1913. There is a complete description of government debt from the beginning, the increase in government debt and budget deficits. It explains things like how the Fed actually creates money, what are bank reserves, what is Japanese monetary policy, what is European monetary policy. All the major macroeconomic developments are described there and are available to subscribers every two weeks. They upload a new video, and so if your listeners would like to check it out, my website is richarddunkeneconomics.com. That's richarduneconomics.com, and if they'd like to subscribe, hit the subscribe button. And I'd like to offer everyone a 50% subscription discount. Keith Weinhold 47:36 Thank you. Richard Duncan 47:36 They'll be prompted to put in a discount coupon code if they use the discount code GRE, like Get Rich Education, they can subscribe at a 50% discount. They'll find it very affordable, and at the very least, they can sign up for my free blog while they're there, and they can follow my work that way. Keith Weinhold 47:57 It is fascinating the AI arms race poised to have us completely change economic systems from criticism to cognitism. Richard, is there any last thing that you would like to leave us with? Whether it has something else to do with AI, maybe I didn't think about asking you, or something with the Iran war and the inflation, or anything else in the economy. Any last thought for what we should do or be aware of? Richard Duncan 48:24 One thing, of course, I think is very important is for everyone to learn to use AI as much as they possibly can. It's easy to use, and it will teach you how to use it. And as we evolve into this new world is going to be crucial to make use of this most important tool humanity has ever had-the ability to use AI. This suddenly gives you access to all the world's knowledge. All you have to do is ask, and it will tell you in a very friendly way. So, by being able to use AI, you'll be in a much better position to survive the transition and prosper in the decade ahead. Keith Weinhold 49:09 That is an actionable way to stay on top of it, Richard. It's been valuable as always. Thanks so much for coming back onto the show. Richard Duncan 49:16 Thank you, Keith. I've enjoyed it. Keith Weinhold 49:24 Yeah, keen insights from Richard as always. Yeah, the U.S. sure has been making enemies the past couple years. That could make other nations less likely to buy our debt, and then in turn, it takes higher interest rates in order to attract bond buyers. Well, that in turn increases mortgage rates. But to some extent, other nations have to buy our debt. Richard says that a bigger round of future QE is a distinct possibility. That is code for money printing. That's clearly. Inflationary, but few seem to know we've already been involved in liquidity operations since last December. Whether that's called QE or something else, it is taking more government spending to keep up with the AI race. That's inflationary too. What about that? When horses were replaced with cars. How did it work out for the horse? I don't know if that made it better or worse for the horse. Maybe horses were out of work, but then they got to live free. Will AI make that very predicament apply to humans? Nobody knows. The economic system will have moved from creditism to cognitism when the economy is no longer driven by credit creation but intelligence creation, from RichardDuncanEconomics.com, you can hit the subscribe to MacroWatch button and enter the discount code GRE for a 50% discount. Just about everything that you heard today is poised to drive mortgage rates higher, not lower. Big thanks to Macro Watch Mastermind Richard Duncan today. Next week it's a more real estate centered show. I'm your host Keith Weinhold. Don't quit your daydream. Speaker 2 51:21 Nothing on this show should be considered specific, personal, or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively. Keith Weinhold 51:49 The preceding program was brought to you by your home for wealth building, getricheduceducation.com

Keith explores how real estate strategies have shifted from the 1980s to today and explains why investors need to adapt deal structures to changing interest rates, lending conditions, and market cycles. He highlights current opportunities in new construction and builder rate buydowns, along with the long-term benefits of fixed-rate debt. Keith is joined by economic futurist and author Richard Vague, who challenges conventional beliefs about inflation and interest rates and explains how government intervention, war, and supply constraints shape asset prices and leverage decisions. Together, they provide a big-picture framework for understanding how today's macro environment affects real estate investing decisions. Episode Page: GetRichEducation.com/621 For access to properties or free help with a GRE Investment Coach, start here: GREmarketplace.com GRE Free Investment Coaching: GREinvestmentcoach.com Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: [email protected] Invest with Freedom Family Investments. For predictable 10-12% quarterly returns, visit FreedomFamilyInvestments.com/GRE or text FAMILY to 66866 Join Mid South Home Buyers' one-time, free live webinar featuring Keith Weinhold on September 30 at GetRichEducation.com/MidSouth to learn how Memphis' economic expansion could create new real estate investment opportunities, and have your questions answered in real time. Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review" For advertising inquiries, visit: GetRichEducation.com/ad Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— GREletter.com Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Complete episode transcript: Keith Weinhold 0:01 Welcome to GRE. I'm your host Keith Weinhold. Learn how dramatically real estate has changed from the 1980s through the late 2020s. We'll be sure that your approach is changing with it. Then a great guest and I discuss how war and future calamities will affect mortgage rates, inflation, and your real estate today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. In September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Home Buyers, the largest turnkey company in Memphis with more than 6,000 homes under management, for a free live webinar, the likes of which I've never done before. We're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth. Again, that September 30th. Don't say we didn't tell you. Save your spot at getricheducation.com/midsouth. Speaker 1 1:35 You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education. Keith Weinhold 1:51 Welcome to GRE from Cambridge, England, to Cambridge, Massachusetts, and across 188 world nations. I'm Keith Weinhold. You're inside Get Rich Education. You could be doing anything with your time. I'm grateful that you choose to listen to me every week. You know, real estate investors sometimes say, "Ah, there aren't any deals anymore. What they usually mean is the deal structure that they learned five years ago stopped working. There are always opportunities in real estate, but your approach changes with interest rates, lending standards, inventory, construction, government policy, and just the overall economic cycle. The best investors don't wait for yesterday's market to return. That's like someone still hoping for Blockbuster Video Store to reopen. They identify what today's market is offering instead. Just consider this historic retrospective on real estate investing from the Reagan administration to today, in 1981, the 30-year mortgage rate peaked above 18.6%. I mean, just imagine proudly telling your friends that you locked in at 17% before rates went higher. That mortgage needed its own defibrillator. By 1984, rates were still near 16%. The strategy then, the approach, was for a buyer to assume the existing owner's lower rate mortgage that they locked in a few years earlier, perhaps in the late 70s, that's how you got a good deal, assuming that existing owners lower-rate mortgage. You can't do that so easily today. Keith Weinhold 3:50 By the late 80s and early 90s, the opportunity shifted from assuming attractive debt to buying distressed properties. The S and L crisis was upon us. Savings and loan failed lenders found themselves holding piles of distressed real estate, so investors bought foreclosures and REOs at discounts. They improved neglected buildings and then they repositioned them for income. You probably know that REO stands for real estate owned on a bank's balance sheet. All REO means is bank-owned property, but that's what you did. You found those, and then you scooped up a deal that way. As the 1990s progressed, interest rates declined, and loans also became really easy to obtain. We were tilting into the loosey-goosey easy lending environment. In the 90s, it was popular to buy an undervalued property, renovate it, raise the rent, and refinance it based on the improved value. That process later got a buzzy acronym and became known as the Burr strategy: buy, rehab, rent, refinance, repeat. By 2005, financing got more creative. This is when I was a new real estate investor. I remember obtaining what were known as 8015 five combo loans. This meant an 80% first mortgage, 15% second mortgage, and 5% down payment. You remember those? If you've been around for a while, you do. And see, this way you could avoid paying PMI, and you could control property with an astounding 20 to one leverage ratio due to that 5% down payment, but soon enough lending just got absolutely too creative and easy. The quiet lending party turned into a boisterous kegger, delivering the 2008 financial. crisis, and pretty soon I could no longer get any loans. From 2009 through the early 2010s, you could buy foreclosures and short sales at enormous discounts if you could find the loan. Keith Weinhold 6:20 Financing was tough, but prices were super low. It might have even made sense to pay cash at that time. Fear was everywhere right after the global financial crisis. I mean, it really took courage to act when others were hiding under the bed. By 2020 and 2021, the opportunity changed from cheap property to cheap money. Mortgage rates dropped below an absurd 3% as a result of the COVID pandemic. You could lock up extraordinarily cheap debt for less than the inflation rate, and then let inflation nibble away at it like Pac-Man. Of course, a lot of us are still benefiting from that today, but that opportunity is long gone now. But it doesn't mean that deals are gone today. Where's the opportunity? One of the best ones is often found in new construction, large build. have got to keep moving their inventory as they build these homes because they have got to keep their crews busy. An unsold house for a builder-I mean-that produces as much income as an unplugged Bitcoin miner. Rather than make conspicuous price reductions, builders use their financial muscle to buy down mortgage rates for you, often in the 5% range or even lower. Keith Weinhold 7:52 Builders might also offer you closing cost assistance, upgraded finishes, or other incentives that a single resale seller just can't match. So from the Reagan administration to today, over 45 years, the winning strategy just keeps morphing. It started out back then as assume the loan, over to buy distress, then to renovate and refi, then it was a creative financing wave, and then cheap debt, and today take the builders buy down. That's where we are. The mistake is deciding in advance what a deal is supposed to look like. The best deal structure changes, and of course, it's going to change again. The investor who keeps fighting the last war is always going to conclude that the opportunity has disappeared, but it hasn't. It's just changed clothing. Still, though, today's new purchases now-they're not as good as the deals that they were five years ago, but the best investors keep investing. They keep adding to their portfolio. It's what they've always done. Absolutely zero winning investors that are successful over time look back and say things like, "I didn't add anything to my portfolio during that 10-year span for this or that reason, the market changes, and you've got to adapt with it. That's a way to think about it. Take solace in knowing a few things. Deal structure changes over time are inevitable. And larger picture, you are investing in a product that is sustainable residential real estate in the form of long-term rentals. These entry-level properties are a scarce asset that people are going to continue to need. I mean, that's what we do here. Just compare. To the fads that we avoid around here, like NFTs, metaverse real estate, which we discussed on the show a few years ago, but said is highly dangerous, eye buying, value add apartment syndications, SPACs, or how about ICO funded altcoins? We don't chase the latest hot thing here at GRE. It is about what's sustainable, necessary, and cannot be easily disrupted by AI, and that's one reason that Get Rich Education is still standing strong after 52 episodes every year for almost 12 years now. Shortly, we're going to bring in a rather esteemed guest today on the future direction of interest rates and inflation. Interestingly, he believes that raising interest rates does not cool inflation, and that's contrary to popular belief. I'm going to press him on this and ask why, but first, our new Fed chair, Kevin Warsh. He's only been on the job a few months now. Keith Weinhold 11:07 He is gaining a reputation for not forecasting what they're going to do ahead of time, like his predecessor had. I guess I tend to like his disposition and the way that he communicates, I sense some pragmatism with Warsh, but gosh, it often seems that a new Fed chair gets off to a well liked start, and then they do something that lots of people criticize. Like, remember in 2004, late Fed Chair Alan Greenspan suggested more borrowers could benefit from adjustable rate mortgages shortly before rates rose and ARM resets became financial landmines. In 2007, Ben Bernanke said that subprime mortgage problems were likely to be contained. Oh, right after that, they helped trigger the global financial crisis, and more recently, the Jerome Powell gaffe, which I'll mention in the interview shortly. Here's what current Fed Chair Warsh says about inflation: Kevin Warsh 12:14 For some households, businesses, and market professionals, five years of high inflation have left a mistaken impression, that's hard to shake, that the Fed's implicit inflation target was somehow above 2% Let me reiterate, there is no soft inflation target. There is no soft implicit target, not on this committee's watch. There's only a target, and it's 2% Keith Weinhold 12:42 It's obvious that he is serious about getting inflation back down to 2% That tends to point toward interest rate increases. Let's discuss that and more with this week's brilliant guest. This week's guest is an economic futurist keynote speaker, and he's quite a popular author. He is chair of the board of the Public School Employees Retirement System. That's the largest public pension fund in Pennsylvania. Previously, the Pennsylvania governor appointed him as the secretary of banking and securities for the Great Commonwealth of Pennsylvania, he's also the founder and president of several various organizations today, and he serves on several boards, including at the University of Pennsylvania and the School District of Philadelphia. I mean, I hardly know how he has time to do it all, but he made time for us today. Hey, it's great to welcome back Richard Vague. Richard Vague 13:45 It's such an honor to be with you. I certainly enjoyed our last session, and it's really wonderful to be back. Keith Weinhold 13:51 Well, and so much has changed since you were last here, Richard. First, why don't we pull back and talk to us about the general state of the national economy today, as you see it. Richard Vague 14:04 ou know the economy was rocking along okay, and you know since you guys are such experts in real estate, I'll tell you one of the most important statistics, in my opinion, is the number of unsold homes, and by all rights, that number should be about 2 million homes. It's only about a million and a half. So there's a deficiency in our housing stock in the United States, which is, yeah, I think good news for the housing industry. It's always good to have a reason to have to grow. You may recall that in 2007, that had gotten up to four millinomes, which was a catastrophe, as we all know. So, it's the economic statistic I looked at first and most closely, and that was, you know, an okay number, and a lot of the things were going along. You know, not fabulous, but not terrible. Things were kind of moving. And all of a sudden now we have the war in Iran, and that's creating all sorts of problems for us, which you know I think you guys are concerned about. So I generally think the economy's been good, but there's a lot of dark clouds on the horizon. Keith Weinhold 15:15 You know, Richard, I was recently sharing something remarkable with our audience. To your point, just since 2020, consider all the calamities that we've had: COVID, Ukraine, Israel, Gaza, tariffs, and the Iran War. Just since 2020, what's the result of all that? Both stocks and residential real estate are near all time highs. Richard Vague 15:42 Yeah, well, you know, one of the things that's true is that this is something I go to in great detail in my book Paradox. But the more debt there is, the higher asset prices go. Keith Weinhold 15:53 Yeah. Richard Vague 15:54 You know, in the case of housing, that broadly helps middle America. In the case of the stock market, the top 10% of the country owns 87% of the stocks, so that tends to go to the wealthiest instead of to the broad population. But yeah, those two things are at highs. Keith Weinhold 16:12 You're touching on your well-received 2023 book, The Paradox of Debt, and you know, Richard, amidst all these calamities and all this potentially unprecedented level of government intervention that we've had-you know-it makes one wonder during the next crisis, which is inevitably going to happen, will the government just step in and provide relief again? And how would that look? Richard Vague 16:38 You know, I think that's one lesson that government has learned indelibly. Way back in 1929, in the couple of years that followed, the government did not step in, and we saw what happened. And I think there's a generation of economists that understand the role of government in a calamity, and you know it's pretty simple. You know the government comes in and crops up financial institutions as they did in 2008, simply by providing the liquidity or buying the bad assets, or the government steps in with relief checks as they did in such a massive way in 2020. But the government has learned that at least to some degree, it needs to intervene. I can't imagine that ever not being true. Keith Weinhold 17:26 Goshmright when you think about 2020s stimulus and how emergency lending facilities were set up, you had the payment protection program, stimulus checks, mortgage loan forbearance. It's just like this government won't let the asset holders fail. Richard Vague 17:46 Well, yeah, you know, there's failure, and then there's something that's hurtful but not quite failure. You know, I can imagine that the government will be able to prevent, in some circumstances, certain asset prices going down some amount, it's actually fairly commonplace for stocks to go down 10 or 20% I can see real estate prices going down as they have in the commercial office space. Yeah, but yes, the government will step in when those things become extreme to prevent a true calamity. Keith Weinhold 18:19 Of course, one consequence of the interventionism is elevated inflation. I know how you've talked before about how the level of inflation is higher than most people think. For example, you'll see today's CPI numbers in the mid threes. Talk to us some more about why inflation is higher than most people think. Richard Vague 18:41 Well, I have studied inflation, you know, fairly diligently, and inflation really relates to the constriction of supply. And if you look over the 250-year history of the United States, we haven't had that many episodes of bad inflation, and they've always related to a constriction of supply. Most of them have occurred during a war when, for obvious reasons, you know, supplies are constricted. The big 1970s episode of inflation was because OPEC, which had so much more power back in those days, acted to you know punish the United States by constricting supplies, and the price of a barrel of oil went from $4 to $40 a barrel. Yeah, between 73 and 79. COVID was another instance where inflation related to constriction of supply. That was you know people couldn't go to the meat factory to cut meat. People couldn't go to the factories to build things, so all of a sudden our supplies were decimated, and we had a short burst of very painful inflation. Well, now we've got the straight of four moves, and that is impacting the price of oil. I think it's going to impact the price of oil more going forward because. Because we've been able to rely on reserves, both the U.S. has been able to rely on reserves, and China has been able to rely on even greater reserves. And you know we haven't seen the brunt of that, but unless something's resolved pretty quickly, I think in the fall and winter we're going to see even more problematic prices there. But we know agricultural prices and even the flow of commodities like wheat are constricted by the constraints in the Strait of Hormuz and, frankly, other waterways as well. Now, one of the things the numbers that you see reported tend to underreport inflation because it looks at a year-over-year number and doesn't really capture it if it's moved up more sharply in the last month or two. So we look at it on a month-by-month. We you know we break it down about as to as many parts as you can break it down into. But PPI, which is kind of a leading indicator on the eventual CPI PPI's producer price index, it was 4.7% this last month. That would suggest to you that things which are in the mid threes now, which is more higher than we want, you know, probably trending over. Maybe not next month, but you know, over the next three to six months, I'm not going to be surprised if the number's more in the four to five range. So, yeah, I think inflation's being somewhat underreported at the moment. Keith Weinhold 21:29 The PPI being that harbinger of consumer prices, often four to six months down the road. And Richard, the last time you were here, when it comes to checking and controlling inflation, you said something so interesting. You said that higher rates, which is typically the response in order to try to quell inflation, higher rates actually do not lower inflation, and you did not get a chance to expand on that because we ran out of time. Tell us more about why higher rates do not reduce inflation. Richard Vague 22:05 Well, I'm going to answer that a couple of ways. One of them is higher rates don't open the Strait of Hormuz. Keith Weinhold 22:12 Right. Richard Vague 22:13 You can put rates as high as you want, and it's not going to open the Strait of Hormuz. Keith Weinhold 22:16 Chairman Warsch doesn't open the Strait. Yes, he doesn't get oil produce nothing. Richard Vague 22:20 Strait of Hormuz. Keith Weinhold 22:21 Yeah. Richard Vague 22:21 And so we can do all we want to on raids, which is a very blunt instrument, and it's not going to address the supply constraints that are geopolitical and war related. So, if you want to curb inflation right now, there's two things to do. One of them's you know end the war with Iran, and the other is to kind of back off a lot of these tariffs that have become so problematic. I think there's a place for tariffs. I think there's certain things China's doing that you know a call for an appropriate level of tariffs. I'm not sure we should be big tariffs on Canada and some of these other places, which have the effect of increasing the cost of our farm equipment and cars and other things like that. So, if you really want to address inflation and address the things that truly underlie inflation, and if the second way I'd answer this is to say, go look at the debt, track the data from you know 1945 or 50. You know, we really look at the post World War II period as the place we really learn things from, and over that period, increased government spending has been accompanied by reduced interest rates and reduced inflation. So, reduced interest rates and reduced inflation have gone hand in hand, and rising interest rates and rising inflation have gone hand in hand, and it's a really easy thing to look at. We've got the data on our site, but there's only been three periods where you've had big shifts in government spending and rates. They're pretty easy to look at, and there's actually empirically an inverse relationship between rising interest rates and it's the opposite of what economists tell you. Keith Weinhold 24:09 I think, in general, economists tell us that when inflation is high, you raise interest rates because consumer spending is about 70% of the economy, and those higher rates therefore incentivize people to be savers because they're getting paid a higher yield, keeping those dollars out of the economy, and they're less incentivized to be borrowers and expand the economy that way. I think in general that's why economists say that higher interest rates reduce inflation. Do you agree with that? Speaker 2 24:40 Well, no, I don't, and the reason I don't is because when you look at the data, that doesn't happen. These are easy things to check, and what I would say to you is that rising interest rates increase costs, and you guys know that better than anybody in the world. Keith Weinhold 24:56 With mortgages. Yeah. Richard Vague 24:58 What do rising interest rates do to? Cost of your mortgage. Keith Weinhold 25:02 Everything increased substantially. Richard Vague 25:03 It has system prices at the grocery store. Well, the grocery stores have to pay our interest for their inventory. So the more intuitive and obvious thing is that rising interest rates increase prices. And by the way, if you and I were to go look at the data right now, which I look at almost daily, that we would see periods of rising interest rates correlate to periods of rising increased costs. Keith Weinhold 25:29 Well, I'm glad you look at history because I often say here at Get Rich Education, if you want to know what's going to happen in the future, it's easy to have a hunch, but it's more important to look at history. Can you talk to us some more about how, over the long term, higher interest rates don't suppress inflation? If that's what you're saying, Richard Vague 25:47 yeah. The greatest rise in inflation, you know, in my lifetime was the late 1970s. Keith Weinhold 25:55 Yeah, Richard Vague 25:56 and for the entire time that interest rates were going up, prices and inflation were going up, and it wasn't until interest rates started coming down that inflation started coming down. So we could look at any number of periods, and if you're going to argue the opposite, you need to go find me some data. Keith Weinhold 26:15 Okay. Well, speaking in more modern times, in the last wave of inflation that we had, the CPI peaked at 9.1% in June of 2022. This is the whole famous Jerome Powell: inflation is only transitory. Oh shoot, no, it's not. I better hike rates. He did, and then inflation came down. Is it as simple as that cause in effect, or did something else make inflation come down post COVID. Richard Vague 26:42 Inflation came down, and it came all the way down in July of 2022. It didn't come down gradually over six, 912, 18 months. You go look at the length monthly inflation. Inflation came all the way down in July of 2022, and stay has stayed down all the intervening period until very recently with the Iran War. July of 2022 was before there was a dramatic increase in interest rates. Keith Weinhold 27:18 Right, Speaker 1 27:19 that's simple. Keith Weinhold 27:21 What caused inflation to come down? Then is it because supply began to arrive on the market again? Richard Vague 27:27 People went back to work, started building things again. Keith Weinhold 27:30 Producing. Richard Vague 27:32 And the problem was folks had not been able to go to the factories and make things, and so we had a you know global supply deficit. Well, the nice thing about that is that you know money incends people to scramble back to work, make things again, and you know once they start doing that, and the Fed actually produces something they call the Global Supply Chain Pressure Index. You can get it on the Fed site. If you look at it, it's supposed to be kind of at zero, and anytime supply chains are disrupted, it shoots up. And any you know, any time the opposite happens, you know there's overcapacity. It goes down, and you can see exactly when supply chains repair is happening. So go look at the. It's called the GSCPI. It's on the Fed side. You'll see that global supply chains had largely started to be dramatically repaired in the spring and summer of 2022, and naturally, supply and demand works. All of a sudden, supply starts showing up, and prices go to hell. Keith Weinhold 28:39 We're talking with economic futurist author and Pennsylvania's governor-appointed former secretary of banking and securities Richard Vague, more when we come back on the affliction of inflation, what this means for real estate investors, and more. This is Get Rich Education. I'm your host Keith Weinhold. What if you got your mortgage loans the same place I get mine. You sure can at Ridge Lending Group NMLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your prequal and even chat directly with President Caeli Ridge. While it's on your mind, start at ridgelendinggroup.com. That's ridgelendinggroup.com. Keith Weinhold 29:29 Let me ask you something: If you've worked hard to build wealth, is your money positioned to actually support your goals? A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. In full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call or text family to 66866. That's family to 66866. Dolph Derues 30:31 This is the king of commercial real estate, Dolph Derues. Listen to Get Rich Education with Keith Weinhold and don't quit your daydream. Keith Weinhold 30:45 Welcome back to Get Rich Education. We're talking with Richard Vague. Richard is the founder and president of so many organizations today. He's the author of several popular economic books. He chairs the board of the Public School employees retirement system. That's the largest public pension fund in Pennsylvania. He's in a lot of places at once, seemingly. Richard, we're talking about inflation before the break. What is the right inflation rate? Richard Vague 31:16 Well, like I said, inflation. If you look at the entire 250-year span of the United States has it been an affliction that has affected us that often? It is political kryptonite. So when it does happen, it steers our consciousness, and it you know certainly affects your industry. But you know, if we look historically, the Fed targets 2% It's not a bad thing to target. We never really have achieved that level for any length of period. I think if you look at it over the past several decades and take out the high inflation periods, it probably has averaged closer to three. So I don't think two to 3% is an inappropriate level, and I kind of suspect it'll be a level that typifies our future once we get past, if and when we get past this more. Keith Weinhold 32:09 Yes, not long ago, I was looking at the history of the CPI or the CPI's equivalent, and over the last 100 years, the rate is about 3.2% and we haven't hit that government-mandated 2% target, which is stated right on the Fed's website. We haven't hit that for any month in about five years now, and this asset inflation, as we know, this disproportionately enriches existing asset owners, and it widens this inequality. Something that's more recently been known as the K-shaped economy, can you talk to us some more about this exacerbating wealth inequality? Richard Vague 32:48 Well, you hit the nail on the head. Something on the order of 80% of all the net wealth held by Americans is in the form of two things: stock and real estate. If you want to talk about wealth, it's those two things, and those two things, probably 60 or 70% of all of those in the U.S. are held by the top 10% I think it's a single-digit number of those that are held by the bottom 50% So you know, if inflation and debt growth push asset prices up over time. It is a mathematical inevitability that the rich get richer faster than those in the middle and at the bottom, and that simply means inequality will increase through time. I believe that's structural. Unless you address that in very some very specific way it will continue. Keith Weinhold 33:43 Inflation affects real estate investors more than it does the average person because we borrow these big pools of money often at 75 to 80% loan to value, and in a sense, although we know it's bad for general society, and we do think about the K-shaped economy. Of course, inflation benefits us because it debases our debt. But even if you're not a real estate investor, even if you just own your own home, you know, Richard, I really think it begs the question: Is a 30-year fixed-rate mortgage one of the best forms of debt ever created for ordinary Americans? Richard Vague 34:22 The 30-year mortgage, which was created, you know, that started on that path in the 1930 s for the very reasons we all know and love, which is getting Americans to own their own home, and has been, you know, a game changer for the country, and truly one of the great things that's been done, and I hope it's something that we continue to defend and preserve. Keith Weinhold 34:46 Well, that brings up leverage and the prudent use of leverage. As real estate investors, we have this benefit of getting all these 30-year fixed-rate loans without the threat of a. Margin call being made. We're not borrowing over in the stock market. When you sign your loan documents, it doesn't say that the bank can call your note due at any time, but one could take it too far. And when it comes to debt, I think that really begs the question: Where does intelligent leverage end, and then dangerous leverage begin. What's the border? Richard Vague 35:25 Well, you guys are experts, and I'm not. But the very simple premise is starts with not overpaying for the property to begin with. It is not an exact science, but generally speaking, I think we can tell when prices are relatively high in a given market and or a given year and relatively low, and you you'd always want to kind of be at least in the middle or somewhat on the low end before you acquire a property. So that's step number one, and then step number two is really just giving yourself a buffer, you know. We saw in the global financial crisis that real estate loans were being made in some cases at 100% of value. Yeah, and frankly, we saw at least some episodes within that folks borrowing over 100% of value, and certainly they were very happy when that happened. But we know there's zero margin for error when you do that, and perhaps even a negative margin for error when you do that. So I would think, you know, you guys know better than me, but you know, I hate to borrow it much more than like 90% of value, maybe 95% if it's a smaller asset and you have a government guarantee, and if you can do it at lower leverage, you know, 70 or 80% of value, that's not a bad thing to consider. I tend to think in the real estate world that you know I've seen many investors, particularly in the commercial space, buy things with lower leverage, 50 or 75% But then, as the asset proves itself, they work with their lender to increase the debt-to-value ratio, you know, and get more money at it over time as it becomes an increasingly proven asset. So they migrate their way from 75% to 95% over time. I think that's a logical path. Keith Weinhold 37:20 That acronym Ninja Loans, which were popular from about 2000 to 2007, that acronym Ninja means no income, no job or assets, and you might still get a loan of 110% of the value of the property. It was profligately irresponsible. Well, Richard, in a moment, I want to ask if you have a resource that our audience can follow along with you if they would like to do so. But before I do that, do you have any last thing that you would like to talk about? Maybe something that I did not ask you, whether it has to do with the general economy or real estate or interest rates or inflations. Is there something else that we should know? Richard Vague 38:00 What I would do is just endorse your podcast. Keith Weinhold 38:04 Thanks. Richard Vague 38:05 You're approaching this in a very intelligent way, and you're very empirical, and I think your listeners are doing themselves a service by continuing to follow what you do. That's a really reasonable, secure, and yet bold path towards creating wealth, then I think you're to be commended. Keith Weinhold 38:27 Oh, I appreciate the endorsement. I'm always blown away at our following, but you have some resources worth following as well. Tell us about that. Richard Vague 38:36 Well, we do. We have a weekly video ourselves that it's about a five-minute video, and you can go to our website, which is tycos.com. So t y c h o s.com, and you know we have data on the site. If you're a real geek, you could go in and you can look at our macroeconomic data. You know, but if you're not, you can sign up for the video, and we come out with what we hope is a short but relevant video once a week talking on some aspect of the economy, and you know we'd love to have folks join that if they're interested. Keith Weinhold 39:10 Well, it's valuable. I suggest you, the listener, check that out. Richard oftentimes turns conventional economics on his head, just like he did with us today, talking about how if there's higher interest rates, that does not necessarily mean lower inflation. Richard, it's been valuable as always. It's been great having you back on the show. Richard Vague 39:30 It's an honor to be with you. Keep up the great work. Keith Weinhold 39:38 In this remote interview, I got a beautiful look over Richard's shoulders there on the screen at Center City, Philadelphia, in the ornate buildings there. I will be in that part of the nation again shortly. Big thanks to Richard Vague. If you're looking him up, it is spelled V-A-G-U-E. We've got a. A lot of terrific content coming up on the show over the next few weeks, including fresh takes on building your wealth that you've never heard before. Until next week, I'm your host Keith Weinhold. Don't quit your daydream. Speaker 3 40:18 Nothing on this show should be considered specific, personal, or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively. Keith Weinhold 40:46 The preceding program was brought to you by your home for wealth building. getricheducation.com

Keith breaks down why global crises, geopolitical shocks, and nonstop "doom" headlines haven't stopped stocks and real estate from reaching near all-time highs, and what that means for investors focused on inflation-resistant assets. He also discusses Memphis as a surprising cash-flow market poised to benefit from the AI boom, sharing details on an upcoming webinar with Mid South Homebuyers. Keith is joined by real estate investor and educator Jared Garfield to unpack the "Seven-Figure Solution," a strategy that combines cash-flowing rentals with tax-advantaged life insurance to create liquidity, reduce risk, and support long-term retirement income. Together, they explore how disciplined portfolio growth, smart leverage, and coordinated tax planning can help real estate investors better align their assets with their long-term financial goals. Episode Page: GetRichEducation.com/619 For access to properties or free help with a GRE Investment Coach, start here: GREmarketplace.com GRE Free Investment Coaching: GREinvestmentcoach.com Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: [email protected] Invest with Freedom Family Investments. For predictable 10-12% quarterly returns, visit FreedomFamilyInvestments.com/GRE or text FAMILY to 66866 Join Mid South Home Buyers' one-time, free live webinar featuring Keith Weinhold on September 30 at GetRichEducation.com/MidSouth to learn how Memphis' economic expansion could create new real estate investment opportunities, and have your questions answered in real time. Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review" For advertising inquiries, visit: GetRichEducation.com/ad Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— GREletter.com Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Complete episode transcript: Keith Weinhold 0:02 Welcome to GRE. I'm your host Keith Weinhold. The world is about to end again. It's the economic disaster that never arrives. I'll break it down. Then you've been earning money and investing well all these years. How does it all go together? It can culminate in the seven-figure solution, it's about seeing your future today on Get Rich Education. What if I told you that one of America's strongest cash flow real estate markets is also becoming the new brains and brawn behind AI? That city is Memphis, believe it or not. And September 30th, we're going to show you why the smart money is paying attention now, along with an investing opportunity you won't want to miss. Join me, Terry Kerr and Matthew Van Horn of Mid South Homebuyers, the largest turnkey company in Memphis with more than 6,000 homes under management, for a free live webinar, the likes of which I've never done before, we're going to look at what billions in new investment could mean for jobs, housing demand, neighborhood appreciation, and your portfolio. Everyone who attends live will also get exclusive access to the best deal terms Mid South has ever offered. Reserve your free seat at getricheducation.com/midsouth again that september 30. Don't say we didn't tell you. Save your spot at getricheducation.com/midsouth. Speaker 1 1:39 You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education. Keith Weinhold 1:55 Welcome to GRE from Kankakee, Illinois, to Cherokee, Iowa, and across 188 nations worldwide. I'm Keith Weinhold. This is Get Recid Education, and the world is about to end. Even if you survive, your portfolio surely won't. Oh, jeez. At least that's the impression you get from mass media and what I'll call the Doom Scroll Industrial Complex. Fear creates urgency. Urgency attracts eyeballs. Eyeballs attract ad dollars. And I guess that using a slogan like "everything will probably be fine" well, that's never been a great ratings strategy. Now, can what has happened since 2020. Just this cheery little sequence: COVID, then Ukraine, Israel, Gaza, tariffs, and then the war in Iran. All that just since 2020. I mean, that right there sounds less like an economic timeline and more like a movie plot, or that the world is repeatedly spinning the wheel of misfortune. Yet after all of that, what is the result? Both stocks and residential real estate are near all-time highs. Apparently, the apocalypse has been postponed yet again-at least economically speaking. Now let's zoom out and break down these threats and a few more, all just since 2020, because 2020 is the year where, of course, you had the COVID-19 pandemic, economic shutdowns, the fastest major stock bear market in history, supply chain breakdown. You saw empty shelves, and there was unprecedented government intervention from the Paycheck Protection Program to stimulus checks to mortgage loan forbearance. Then, in 2021 and 2022, you had post-COVID inflation and supply shortages. Now, this was more of a result, not strictly geopolitical, but a major investment threat, and that led to aggressive interest rate hikes. From 2022 to the present, you have Russia's invasion of Ukraine, energy and food shocks came from that, sanctions, instability over in Europe, and really a heightened nuclear risk in 2023. You had the U.S. regional banking crisis. Remember SVB, yes, Silicon Valley Bank, Signature Bank, First Republic. They raised fears of a financial contagion that would spread like fat. Than a secret in a small town, it actually made me buy some gold. From 2023 to the present, you had the Israel-Hamas war and this broad Middle East instability, Hezbollah attacks, Houthi attacks, Red Sea shipping disruptions. It's almost like a geopolitical group project. And then from 2025 to the present, you have renewed U.S. tariffs and a global trade war, and this year you have the U.S.-Israeli war with Iran and the Strait of Hormuz disruption. That is the biggest current geopolitical investment threat because it combines all of these things: war, oil disruption, inflation, higher interest rates, and a recession risk. So it's a lot like this particularly unpleasant smoothie that's been blended together. Keith Weinhold 5:55 All right. Well, all of that-that is just an absurd amount of uncertainty and disruption only since 2020, and though major markets are at all-time highs in the face of this, let's acknowledge that some were hurt here, like apartment building owners vulnerable to interest rate resets, and certain commercial sectors like office. Even worse, let's be sensitive to the fact that COVID in wars have resulted in a real loss of life. GRE's enduring strategy of primarily owning long-term residential rentals with fixed-rate debt has been comparatively really resilient. In fact, these calamities-they probably made you better off from the inflation that it has spurred. More people work from home. Well, that means that they're consuming our product while higher inflation debased our debt and jacked up our property values and our rents. And you know somehow every. single generation thinks that their collection of crises is uniquely terrifying, and it is not. And what do I mean by this? Well, in the 1980s, people feared war with the Soviet Union, the Cold War. A global population explosion so bad that millions or billions of people would surely die from hunger. You had the AIDS crisis. You had a hole in the ozone layer. Well, all those things. Virtually zero investors make decisions based on that stuff: an imminent Soviet attack or mass starvation from overpopulation. There is one thing that is 100% certain here, and that is that more shocks are coming. In case you don't want to sleep well, you can get worked up over the certainty of future calamities, artificial intelligence is making cyber attacks faster and more scalable. AI has even created entirely novel viruses. A confrontation between China and Taiwan that could create risk in the semiconductor space. Keith Weinhold 8:18 A blockade that might disrupt the world's advanced chip supply, creating more inflation and more uncertainty. Here is what's changed, though, for what investors care about. You know what has changed with today's set of calamities versus those of the 1980s and earlier, because there is something, and it's a big deal for investors. Here's what's changed: recent history shows that the government does more to intervene during disasters, stimulus checks, liquidity programs where they're printing trillions, bailouts, pushing interest rates down to almost zero, quantitative easing. How about a foreclosure moratorium? Anything you know during COVID, it was a lot of these things, and it was the CARES Act, and it was a student loan payment pause. I mean, the Federal Reserve even set up emergency credit facilities. We now know that when the economic building catches fire, policymakers they rarely stand around admiring the flames. They just flood the place with currency. So the best investors they keep prudently building real estate portfolios in the face of risk, not the absence of risk, because the latter does not exist. This incessant government intervention, whether you agree with it or not, it gives you more safety cushions the next time that things fall apart. That's why what appears risk. Is still risky, but less so. So there is more incentive to take on prudent risk than I've ever seen. You know, no politician wants America to fall apart under their watch. So increasingly, they'll just paper over the problem by printing, printing, printing, and then, therefore, the resultant inflation, the consequence of this, that can be dealt with under the next president's watch, not theirs. In fact, future calamities they almost make you want to own scarce real assets that benefit from inflation, not a hedge, a benefit. Trying to time every war, election, banking crisis, tariff announcement, virus, and Fed decision. Trying to time all of those things-that is usually ineffective. You either own more assets, or you get left behind in everything that's happened since 2020. That just underscores this. In fact, Berkshire Hathaway, the closely watched company that Warren Buffett ran for a long time, but he still has influence in. Keith Weinhold 11:16 You know, they recently began moving out of cash and into assets, they ended their long net selling stretch. In fact, in the latest quarter ended, they've now done the most buying that they've done since early 2022. They have jumped back in the game. It appears that Berkshire Hathaway got tired of sitting on the sidelines and seeing others make gains, and they're pretty bullish on housing too. They bought a home builder. The bottom line here is that shocks are going to keep arriving, and yet productive assets and well-financed residential real estate has repeatedly survived them and just continued appreciating. Don't wait for a risk-free world because you'll wait forever. When you evaluate all these calamities, just since 2020, again, COVID, Ukraine, Israel, Gaza, tariffs, and war in Iran, and then you realize that both real estate and stocks are near all-time highs anyway, and the government keeps backstopping asset owners like never before. This is just a fresh angle on how much better off you are when you prudently own more inflation-benefiting assets sooner. I want to tell you about something called the seven-figure solution. You've been here listening to me weekly since 2014. You've been earning money. You've been investing well, and now you're going to see how it all goes together. It's about making sure that your real estate and your other assets appropriately fund your retirement in a way that gives you protection against market downturns, a tax advantage pool of liquidity, the death benefit of a life insurance policy, and actually introduces you to a new form of leverage all at the same time. Now the liquidity here is key because this is where a 401(k) or IRA limit you, they have taxes and penalties if you want to use those funds early. This doesn't, but the seven-figure solution-it's not just for retirees. In fact, our own in-house investment coach Narayish uses something like this, and he is in his 30s. Let's discuss it, and then you'll see where I have an invitation for you, where you can get involved. I'd like to welcome in a guest we last had on the show a few years ago. Keith Weinhold 13:54 He's a frequent guest on popular shows, including our friends over at the Real Estate Guys Radio Show, and this guest has also been a terrestrial radio show host himself. He's a long-time real estate educator and an active investor, just like you and I. So he speaks from experience and not a textbook. He's the creator of what we'll discuss today, called the Seven Figure Solution. Welcome back to the show, Jared Garfield. Jared Garfield 14:21 Hey, it's great to be with you again. Thanks for having me. Keith Weinhold 14:25 It's so good. Now you're with the Haven Bridge Group, and you help people, especially real estate investors, with what's called the seven-figure solution. Tell us about it. Jared Garfield 14:37 it. Well, Haven Bridge, we get the name for that because people are really looking for a haven of safety, and the bridge is kind of what crosses the gaps that could kind of destroy your wealth, and it's the path to get there. So we want to take people on a path to safety, and the seven-figure solution is the idea that if you're going to be drawing out even 4% per year to not outlive your money, because people are living now. To 8590, 95 years old, and so that means you could have 35 years in retirement. And with inflation and different things like that, you really have to have a lot bigger nest egg than what most people realize. So a seven-figure solution is how to get to more than a million dollars liquid that you can draw on in a tax advantaged manner for the rest of your life, while also having living benefits. And we pull real estate in with it because we want people to have 10 or 15 or 20 rental properties by the time they retired. That they 1031 exchange regularly, so that they're always keeping tax advantages. So that even in retirement you have strong tax advantages, and ultimately we think that when you're 65 or 70, you might want to go from 30 single-family houses to 1031 exchange into one institutional asset that's a little bit less management intensive. Keith Weinhold 15:57 Okay, so this is a tax advantage vehicle that real estate investors can use during their investing career, and those tax advantages then really convert into something that you can use in retirement as well. Jared Garfield 16:11 Yes, what it does is it's a vehicle that instead of saving the money from your cash flow from your rental properties in the bank, we say, well, why wouldn't you rather invest in something where it grows tax-free, number one, and then number two, you don't have the penalties like you would with a 401k, where you get taxed and you get penalized 10% if you pull it out. It's liquid, usually about 80 to 90% liquid, so you can pull from it whenever you like, and you can use it for down payments to grow your real estate portfolio. But you can earn sometimes between five and even seven or 8% in a tax advantaged manner where you're not taxed on it, but you're earning a much higher return than if you put the cash flow into a bank. Keith Weinhold 16:51 All right, so you're building this tax advantage pool of capital that grows over time, and this is important to have some liquidity. You know, Jared, I've often talked to our audience, about three to 5% of your portfolio value ought to be kept liquid. Maybe with a vehicle like this, you would want to put in more of that because real estate investors we have expenses, so you have this liquidity to cover things like vacancies and major repairs, or perhaps you could even use this account for future down payments on additional investment properties. Is that how it's utilized? Jared Garfield 17:27 Yeah, absolutely. And I get it partially this way because in my early 20s, I got up to where I had about six rentals, and at the time, I also owned a real estate brokerage, and I was doing very well. I was making a six-figure income and things. And what happened is, I back when a Keith Weinhold 17:41 six-figure income was a big deal. Jared Garfield 17:43 Yeah, back in the early 2000s, it was a little bit better money. But the funny thing was, I had four rental properties that all went vacant at the same exact time, and so now all of a sudden, I was paying like 4500 bucks a month in mortgages, not counting the house I lived in, but I had to cover four mortgages on four of my rental properties all at the same time, and I hadn't saved the cash flow, so I didn't have a huge emergency fund. All my liquid capital went into down payments and into renovation money to rehab the properties. Okay, and so it put me in a real bind, and I was out driving a Volvo S80 around throwing two paper routes in the mornings, and then going to my real estate brokerage after my paper routes to cover those rental properties. And so this was basically meant as a way to say, okay, this is a way that I have the liquidity. I'm getting a higher return, but now my tenants are not only buying me the houses, but they're also giving me a couple million dollars in life insurance, and they're wrapping my investment component or the cash value of that, the cash value part of the policy. They're wrapping that in a way that it grows tax-free, so it just accomplishes a lot of things. But the other thing that's a beautiful thing about it is there's a lot of things that we call living benefits. Keith Weinhold 19:02 All right, so you have the living benefits and the tax advantages, and I know how you have pointed out that this can save an investor 10s of 1000s of dollars in taxes per year and hundreds of 1000s or more over time. Can you tell us more about that? Jared Garfield 19:20 Yeah, because what happens is the money that goes in is growing tax-free, so you don't get taxed on any of the growth. But what we really like about it is, let's say that you're cash-flowing $2,000 a month off your rental properties, and you're putting 2000 a month into this policy. Usually, after the first year, if you're max funding, 80 to 90% of that's liquid. So if you've got 24,000 sitting in there, you've got access to 89 to 90% of the money. So it's pretty liquid. But what happens is over a 20 or 30 year period, that money could turn into three or 400,000 a year that you can pull out in the form of policy loans. And by doing that, it's not taxed. And you can pull that out throughout your retirement tax-free. So if you were paying 25% in taxes and you're pulling out 200 grand a year, that's $50,000 a year in retirement that you're saving in taxes. But that could be over a 20 or 30-year period. So over 20 years, that 50,000 could end up being a lot of money. I mean, 500,000 over 10 years, a million over 20, and so that means you don't have to accumulate as much. But a lot of our investors love it because they'll save it up with discipline, and then that way it's there if the furnace blows. So it makes your real estate safer, but it also becomes your down payment funds to expand your portfolio. Keith Weinhold 20:40 Okay, the seven-figure solution is the vehicle that we're talking about here, and what part of the IRS code, just briefly, is it that gives this tax advantage? Jared Garfield 20:51 It's Internal Revenue Code Section 79 that allows it to grow tax-free. In the 1980 s, doctors and a lot of very wealthy people were using this to the point that IRS changed the laws. They went and sued the insurance companies because doctors would go in and dump $2 million in, and they would buy a $2 million life insurance policy. So they were self-insured, which meant that they didn't have any cost of mortality on it. So they basically got all the benefits of the tax-free growth and the tax-free pullout. And the IRS said, "Wait a minute! We think you're doing tax evasion. So what they did is they came around and they said, "We're not going to let you use this loophole anymore for the very wealthiest people to have this. So they came to a compromise, and the compromise was that if you wanted to put in 2 million, you had to maintain a corridor where there had to be a little bit higher amount of life insurance. So you might have to buy a $2.3 million policy, but then you could still dump, say, $2 million in and have all the tax advantages. It's a strategy that's been used for over 100 years by families like the Rockefellers and the Hunts and J.P. Morgan. The very wealthiest families have always used these strategies to grow and protect their wealth. Keith Weinhold 21:59 Okay, so it's a part of the tax code that allows cash value to accumulate within and be withdrawn from a life insurance policy tax-free. Jared Garfield 22:11 Correct, and it gives you living benefits, which I alluded to a minute ago. And the living benefits are if if you end up having to go through things like long-term care, disability, if you can't perform, you know certain functions for a certain period of time, chronic illness, critical illness, terminal illness. If any of those things happen to you, you can borrow against the policy and have access to money during those things that would normally decimate your wealth, because you can actually access the death benefit in advance. Keith Weinhold 22:42 Now I know a little about the six risks. Tell us about that. Jared Garfield 22:47 Well, Keith, there are six risks that all investors face regularly. The first one is inflation erosion, and that means that your purchasing power often ends up leaking out of your balance. And the balance might look fine, but inflation can eat away at it. So even if you've raised a lot of money, if inflation means that you can buy half as much five or 10 years from now, then you know your wealth isn't as big as you thought. The second is the volatility setback, and that's sequence of return risk. That means that if you retire on a bad year where things really bad, stock market drops, you could end up using your money at a time where it really weakens your wealth because it may have dropped by 50% So if you had a million, now you have a half a million, and you're spending 100,000 a year. At the end of year one, you might only have 400,000 left. So sequence of of return risks from volatility setback, tax drain. That's just the compounding cost of an uncoordinated tax picture can really be a problem, and then the next one is liquidity. If you don't have liquidity and you've locked up all your money and you can't access it until you're 59 and a half without significant taxation and 10% penalties, the liquidity lock is a problem. There's the longevity paradox. What happens if you outlive your money, you know. So living longer is a benefit, but it exposes you to where you might not have enough money to live on in your latter years. The last two are care avalanche, and that is if an unexpected health event happens at the wrong time, it could really destroy your wealth because medical costs have spiraled out of control, and then the last one is the line to land, and that's only one of the six that's really about growth. Keith Weinhold 24:28 Right, only one of the six of those was about growth. I can't stand the longevity paradox. Yeah, we think we all want to live a long time, but then it's more difficult to fund living a long time, and if you outlive everybody, nobody shows up at your funeral either. The longevity paradox-one of the six risks that the seven-figure solution can really help you with. Now, tell us more about funding it, so you can get a good cash value balance in. There, I know that one way you do it is actually with short-term rentals instead of a paycheck. Jared Garfield 25:06 We love short-term rentals, especially for our highest net worth clients, because the reason is is the bonus depreciation of the big beautiful bill. Oh, right! You could take up to like 150 or even $200,000 in year one, they take that depreciation that they used to spread out over a whole lot of years, and they make it to where if you get with your CPA and you analyze your short-term rental, you could potentially take all of the furnishings, all of the artwork, all of the dishes and things that are in the property. Sometimes they'll let you take components like the appliances, the air conditioning unit, the furnace, and they'll let you take it all in year one instead of having to line item it and spread it out over you know 27 and a half years. So what this means is, if you have a short term rental, then you you might get like 150 to 200,000 tax break in the first year on the right property, but it's better than that because instead of having to have like 750 hours to hit full-time real estate professional status, it cuts the hours that you have to have significantly down. I think it's more like 150 hours or something like that, or 300. It's like half the hours, and so you can hit the benefits of taking unlimited passive loss much easier if you have a couple of short-term rentals. Keith Weinhold 26:24 You're listening to Get Rich Education. We're talking with Jared Garfield about the seven-figure solution, something that takes some time to understand, but it can give you a tax-advantaged pool of capital that grows over time, and it also creates this overall tailwind, not just during your investor life, but then it provides tax advantaged retirement income at the same time. More on this when we come back. You're listening to Get Rich Education. I'm your host Keith Weinhold. What if you got your mortgage loans the same place I get mine? You sure can at Ridge Lending Group and MLS 42056. They provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your prequal and even chat directly with President Caeli Ridge while it's on your mind. Start at ridgelendinggroup.com, that's ridgelendinggroup.com. Keith Weinhold 27:25 Let me ask you something: If you've worked hard to build wealth, is your money positioned to actually support your goals? A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers freedom notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation. And full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works, so you can decide if it aligns with your portfolio and income goals. Every investment carries risk, and nothing is guaranteed. But with a track record of consistent, on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call, or text family to 66866. That's family 266866. This is the Speaker 2 28:28 Real Wealth Network's Kathy Betke, and you are listening to the Always Valuable Get Rich Education with Keith Weinhold. Keith Weinhold 28:46 Welcome back to Get Rich Education. I'm your host Keith Weinhold. We're talking about the seven-figure solution with Jared Garfield. Something that can be a particular benefit to real estate investors both during your investing career and then once you're in retirement as well, and this can take the form of either an indexed universal life policy or a whole life policy. There are a lot of wrong ways to do this and wrong things to get into. We're talking about the right way. Part of that is funding it as best you can. Can you tell us more about that? Jared Garfield 29:20 Well, there's a lot of different ways to fund it. A lot of our clients will come in. We have some people who will use rollovers if they're nearing the end of retirement. Some people will roll over a 401k into a cash value life insurance policy because they can do it over a five or seven year period, and they pay the taxes when they roll it over, so their taxes go up a little bit for five or seven years of retirement, but then what happens is that means that during their retirement they're not taxed on the income all the way through retirement, so that can save really significantly. But a lot of our clients will do a flip and dump 40 or 50,000 a year in by just saying I'm going to do one flip a year and use that to. Fund the whole thing, or they'll take the cash flow and dump the cash flow into here instead of the bank, just so that they get the living benefits and they get the much higher return with still 80 to 90% liquidity. So could be cash flow from rentals, could be money from a flip, or sometimes some of these short-term rentals can make 20 to $30,000 a year, and if you get $100,000 tax break, you have more money that's not going to Uncle Sam, and then because that's your discretionary income now, because of the tax break, you could use that money to for down payments to grow your portfolio or to do a flip. Keith Weinhold 30:35 Now, Jared, I sort of think of the cash value that you're accumulating in this policy as safe money that grows at a slow to moderate steady rate, but if it rarely or ever loses value, can you tell us more about that and the rate of return expected in the policy? Jared Garfield 30:52 Yeah, absolutely. With the IULs, it's going to depend a little bit upon the carriers and stuff like that, and whether you go with a mutual company and stuff like that. It can vary, but a lot of times people are going with things that are what we call indexed. So you can actually index it to the S and p5 100 if you think that we're going to have a bull market and the market's going to really go up strongly. You can index it to the market, and sometimes they'll have a participation rate where they'll say, "Okay, you can participate up to 12% So if the stock market does 17% the most you can make is 12% So you're giving up a little bit of upside, but that's still not nothing. I mean, that's not three or 4% You can still make you know 10 or 12% that year, but you're giving up the part above the participation rate. And the reason that you do that is if the market tanks and drops by 30 or 40% The worst you can do is 0% return. Zero is my hero because you didn't lose anything. So if you had a half a million sitting there, you don't go down to 250 and then wait eight years to get back to break even. Instead, you're still at half a million. And if the market goes up next year by 20% and you had a 10% cap. Then your half a million, you know, is now at 550,000. When everybody else, if it went up by 10% they're at half the amount that they had. Keith Weinhold 32:13 You have a story or example of how you've helped somebody with this, because I know a lot of investors that are passionate about utilizing the cash value inside an insurance policy tell us. Jared Garfield 32:28 Well, I've got one friend who's a developer, and he did like a $5 million policy. And every time he flip a subdivision or flip a house, and let's back Keith Weinhold 32:36 up. Does a $5 million policy mean that's the death benefit? Jared Garfield 32:40 Yeah, that's the death benefit. Thanks for catching that. That's the death benefit, but that also has a correlation to how much money you can dump into it. So if you have a $5 million policy, you can dump a lot more money in for the tax free growth. And the quicker you hit that death benefit amount, at that point you're self-insured, and so at that point you really don't have cost of insurance on administering the policy hardly at all, and so at that point, when you're what we call self-insured, the return on the investment becomes a lot better. But this particular developer was able to use this policy because he had so much cash value in, and if he sold a house, he'd take 40,000. If he sold 10 a year, he might take you know 400,000 and dump it into this policy, and so it made him bankable. And he was able to use the money to go out and do new subdivision developments because the bank would actually use the policy as the collateral to be able to give him loans at much lower interest rates. Keith Weinhold 33:38 That's valuable. Tell us about that. I don't want to use the wrong words here, but then effectively with this example, are you borrowing against the funds in the policy? So therefore, you can get those dollars working for you somewhere else, all while simultaneously the cash value continues to compound and grow. Sort of another form of leverage. Jared Garfield 34:01 Correct. What they basically do is they basically freeze part of the amount and say, okay, we're using this as the collateral and stuff like that to be able to do the loan. But if it grows and and makes 7% you're still making the money off of the money that's sitting in there. It's just collateralized as part of the loan. And some people will even use it to like go buy a car, like instead of buying a car and going getting a bank loan and paying 7% to the bank, they might borrow money out, go pay cash for the car from the life insurance policy loan, and pay 2% instead of 7% But they're paying it to themselves, and as long as they're paying the interest to themselves, if the money that they borrow out could potentially still earn the same money and earn 7% even though you had borrowed out. So it's doing two things for you at the same time, as long as you're paying that loan interest. But and that depends on the option that you take when you do your loan. Keith Weinhold 34:54 We love leverage around here. Leverage trumps compound interest. In so many ways. Oh, I'm really glad that you told us some more about that using the funds in more than one way at the same time. Tell us more about what it costs for the investor, the costs of setting this up, and then what some of those trade-offs are, Jared. Jared Garfield 35:18 Well, that really depends on the individual. I mean, everybody has to sit down and be able to decide what is acceptable for them. You know, a lot of times people will want to max fund the 401k that they're doing at least just to the amount that's matched. But then after that, this could be a great place instead of putting a whole bunch more money into a 401k. Some people will elect to say, "I'm going to put the matching portion into my 401k, but then I'm going to take my cash flow from my real estate and money that I could have contributed to other alternatives and put it into this because I want the liquidity. I want to be able to leverage this money and pull it out without any restrictions. That as long as I can pull out 80 to 90 percent, I could go buy a car wash, or I could invest in a business, or I could, you know, do whatever I wanted to. I could loan it to my kids for their college and make them pay me loans back to my policy. There gives you a lot of flexibility to do it. But the thing that we love about it is we'll do what's called an illustration, and it may end up if you start at the right time, it could be a six-figure passive income stream at retirement, and then if you have the real estate, because this helped you grow your portfolio, where without doing the strategy, you might have ended up with say 10 properties. We might be able to get you to 20 or 30 properties working together as a team with your real estate coaches and stuff like that. Then we can potentially grow your real estate portfolio, and what we want to do is 1031 exchange every seven to eight years. I don't believe in holding properties for 30 years. Jared Garfield 36:47 I believe in exchanging them every seven to eight years because when the tax benefits have been used up, if you exchange to twice the size portfolio, you have better appreciation on a portfolio worth twice as much. But that new value, you still get the depreciation advantages, where the old value that was half, you know, the depreciation is used up. So you're you're getting new depreciation on the higher value assets, and then our goal would be that by the time you don't want to be involved in managing the property managers, that at some point you're going to have a 200 unit apartment complex with on-site management, and at that point you don't have any financial worries really because you're 1031 exchanging into those apartment complexes, but you have so much equity that you're still maintaining depreciation during your retirement years. When most people who have lesser plans don't have the tax advantages, Keith Weinhold 37:41 I love that you said so much of that, and to you, the listener, Jared is licensed to do this, and our own in-house investment coach. You mentioned coaching. Naresh has the proper licensing as well to holistically help integrate this into your investor life. And for example, yes, we are rarely of the mindset that you would hold a property for all 30 years because after seven to 10 years, your leverage ratio gets worn down, and then additionally, if you're buying turnkey properties, oftentimes that's when capex expenditures start to enter into the picture. So yes, oftentimes we do these seven to 10 year holds. Jared Garfield 38:23 I love that. Yeah, that's a really really good strategy, and and it always makes it to where you can grow so much bigger portfolio by not being taxed through that exchange. And you know, believe it or not, there's actually even ways when you have extra cash boot, they do allow if you notify them in advance. Sometimes you can take some of the cash boot on the exchange and roll it into some of the products that we utilize. Keith Weinhold 38:47 For more specifics, I know you said it's based on one's individual situation, but how much does it cost to set up a policy? And then, are there any ongoing maintenance fees? Can you give us more specifics there? Jared Garfield 38:59 So, there's small fees to administer the policy because you have people who are trading and doing different things and working within the policy for the funds. But usually, you can set policies up as low as 100 or even $200 a month. We don't usually recommend that because you want to max fund it. Usually, when you're doing these strategies, if you're just doing $100 or $200 a month, you're basically buying life insurance, but you're missing a lot of the benefits because what you want to do is to be able to max fund it. So what we like people to do is get as minimum life insurance. That's not in our advantage because we get paid based on the premium of the amount of life insurance you get. But you get the smallest amount of life insurance for the amount that you can max fund. I would much rather have somebody get a $500 a month policy that, let's say, they could put you know a thousanmd a month in or something like that, than to have somebody get $1,000 a month policy where they're paying a thousand a month but they can't max fund it because by max funding it you're maximizing the growth component of the cash. Value, and so it depends on how much you want. But you can go anywhere from $100 or $200 a month to we have clients that will dump $20,000 a month in because they really want to shield as much money as they can from tax growth. Keith Weinhold 40:15 Tell us more about who the seven-figure solution is for and who it's not for. Jared Garfield 40:20 Well, if you're living month to month and you don't have discretionary income, it's probably not a good solution. In that situation, you probably want to get term insurance and just make sure that you cover catastrophic things. But if you've got discretionary income and you've got an extra four to $500 a month that you could use to max fund, we figure most people need life insurance anyway, and the way that we teach it, when you mix it with real estate, rather than pulling it from your monthly budget, doesn't it make a lot more sense to let your tenants buy the houses for you, but also pay for a half a million or a million dollar life insurance policy for you, where the tenants are covering the savings for anything that happens at the property with capex or vacancy or damage, and at the same time covering life insurance and potentially a six-figure passive income that's tax advantaged at retirement. So I pull the money out from other assets and let the assets cover this asset. Keith Weinhold 41:18 Oh well, Jared, this has been great. Before I ask you if you have any last things to tell the audience about the seven-figure solution, I invite you, the audience, to join us. It's going to be Jared and our own in-house investment coach, Nareesh, bringing you a live online event that you can join from the comfort of your own home next Thursday, the 27th at 8 PM Eastern. You can register now; it's free at grewebinars.com because there are a lot of moving parts, and it does take some time to wrap your head around this, benefiting from the cash value of an insurance policy. And this way you can have a Q and A, and you can get answers in real time at this event. It's called the Seven Figure Solution: Build wealth, reduce risk, and create tax advantage retirement income through real estate. Again, it is next Thursday, the 27th at 8p.m. Eastern, you probably have generated some questions inside your head while you're listening to this, and you can sure have them answered there as you're going to learn a whole lot more about it next Thursday. This could help a lot of people. Jared, do you have any last thoughts? Jared Garfield 42:38 I think the only thing is that we like to work with the team. We like to work with your CPA. We like to work with your real estate investment coach. I used to be a coach and trainer for Robert Kiyosaki, who wrote Rich Dad Poor Dad, and he always talked about power teams. And so we want to be able to be a part of your power team and work with your other advisors to help you implement something. We're not here to give you tax advice. We want you to be able to work with your investment advisors and your CPAs, and just be a part of the team. But I would point out that over my career, I've owned hundreds and hundreds of single-family cash flow rentals, duplexes, fourplexes, apartment complexes. I've done some land development, and I implement these strategies myself. I had 17 Airbnbs, and so these are the strategies that I implemented as a full-time real estate professional. I felt like that this strategy of having a seven-figure solution could help you to avoid some of the pitfalls that I experienced in my 20s. Keith Weinhold 43:32 So much all comes together for one pretty comprehensive solution. It's the intersection of growing your portfolio, getting tax advantages and having the death benefits of insurance and more all coming together next Thursday, so that you can learn more. Jared, it's been great having you back on the show. Jared Garfield 43:52 Thanks, Keith. Always glad to join you. Keith Weinhold 44:00 Integrate the seven-figure solution the GRE way, where we have this conscientiousness about leverage and cash flow. In this case, it's how to prudently leverage a life insurance policy. When it's time to tap your cash value, you take what is a policy loan, not a withdrawal, because you're borrowing against your cash value, hence using the funds in more than one place, and the IRS does not tax loan proceeds. This reminds me of a billionaire and how they borrow against the value of their stock. That way, they don't have to sell their assets. This is similar to what you can do with this. Another thing is that you know real estate investors are not used to a volatile ride because our asset values stay stable. You heard Jared mention the acronym IUL there. That's an indexed universal life policy. It's a real benefit. That says you tie yours to the S and P five hundred. Well, that index was down 18% in 2022, and that your cash value can have an upside ceiling and loss protection on the downside-an option that you'll care more about as you get toward retirement. In 2008, the S&P was down 37% so the math is cruel on value losses. In fact, it's even worse than it sounds because if you're down 30%, then you need a 43% gain just to get back to even. That is just math. Keith Weinhold 45:39 There are some mistakes to avoid here, and you don't just want to set up your seven-figure solution off of a website. And it is based on products that you might have heard of from companies like Nationwide and Mass Mutual. I strongly encourage you learn more, see how it all goes together, learn how the seven-figure solution compares to other vehicles like a Roth IRA, 401k, 721 exchange, and 1031 exchange. This is very much about seeing your future. You've been listening to me here every week for almost 12 years, earning money from your day job, building your real estate portfolio, either from our investment coaching or on your own. This is how it all goes together. Next week with Jared and GRE investment coach Naresh. By attending live, you can have your questions answered in real time. One last time, you can sign up for the event for next Thursday, the 27th at 8 PM. Eastern, 5 PM. Pacific. Learn about something that's potentially really valuable to you: the seven-figure solution at grewebinars.com. Until next week, I'm your host Keith Weinhold. Don't quit your daydream. Speaker 2 46:59 Nothing on this show should be considered specific, personal, or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively. Keith Weinhold 47:26 The preceding program was brought to you by your home for wealth building, getricheducation.com