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David: Alright guys welcome back to the discount property investor podcast. I'm lucky to have my business partner and co-host back today for an episode.

Mike: What's up Dave! I've been absent for so long just over here doing my thing.

David: You're doing your thing, you're staying busy.

Mike: Let you run the show here.

David: You're running the show with the banks and the rehabs and all that though Mike.

Mike: Yeah a little bit, yeah.

David: We do appreciate you brother but we're happy to have you back man.

Mike: Teamwork man, teamwork.

David: What are we talking about today man? I have a suggestion.

Mike: Alright let's talk about it.

David: I'd like to talk about the advantage of building wealth with rental properties.

Mike: Dude let's do it, that's a great thing to talk about because we are and I mean I'll be fully candid, we're a little slow

David: Yeah we are a little slower now.

Mike: Deals are a little tougher to find.

David: Thank the lord that we have 60 single family homes and another roughly 30 units of apartment complex to help pay the bills every month, that's like 20 grand coming in.

Mike: It's huge. Well and what's amazing is with you know everybody talks about the market, the market, and I don't like to talk about the market because it's so specific or so local in real estate but it does seem to be a national thing that the market is high or housing is scarce so prices are going up. So that has truly helped us because we bought so many properties prior to now so these assets like Dave was talking about is like having these assets, they've appreciated significantly in value and if you look at any of your other accounts, they're not doing as well. So again and I'm not a naysayer on crypto or stock investing but again-

David: Oh and over the last couple of weeks though it's all down anywhere from 20 to 60%.

Mike: Yeah well again and they got hammered, I mean crypto got hammered recently. Well what's funny I actually heard someone on the radio and it was a conservative person talking and they were actually like for investing in crypto because they were looking at the time period over one year, if you invested 10,000 in crypto and 10,000 in the stock market, you would be at $9000 in the one and 9200 in the other. Exactly so you lost a couple 100 bucks, but if you went back two years you'd be down a little bit and whatever but if you invested in- they went all the way back to five years ago-

David: Oh you're up like 2000%.

Mike: You're up to about $30,000 in crypto and you're at about like 11,000 or 12,000 in the stock market. So again I'm not a naysayer, don't get me wrong it's just your time period. The longer time period for most investments is always going to be helpful because again you don't have to cash out when the chips are down. So again that's a you know important thing to consider.

David: Yeah when you cash out and the chips are down, you are in the house of pain man.

Mike: It hurts, it does.

David: It hurts, it's no fun. But back to rentals and real estate, this is why I love building wealth with rental property. So if you're listening to this podcast versus watching this on YouTube, I might have to describe a little bit what I'm doing here but I have a piggy bank in front of me and it's a pink piggy bank, it's got white polka dots, it is quite hilarious.

Mike: Yeah it's cute.

David: But it's a great uh not acronym, that's not right- metaphor, that's the word I'm looking for, for what it's like to buy a piece of real estate as a rental. So when we buy a rental property, we essentially are buying or creating, I think is a better word, a small little piggy bank like the one I'm holding here in my hand. And this piggy bank when we buy a rental, we're hoping that it's got 20 grand worth of equity. That's kind of the goal at a minimum, hopefully more but it's got 20 grand worth of equity in it. Well assuming that we use you know a local bank and you know we do like a 20 year loan, right? a 20 year amortization loan, now that rate may adjust a little bit along the way but over the 20 year period, this Piggy Bank will grow to the size of like a BW bug. I mean if you think about it right going from 20 grand worth of equity to maybe 150 grand worth of equity if you pay that property off, this Piggy Bank will grow and instead of just you know having a little bit of change in it Mike, it's gonna be filled with $100 bills and it's gonna be the size of a BW- is it a beetle or a bug, what do you call it?

Mike: I don't know, same thing.

David: You know what I mean. Yeah same thing right? But why is that important? Well it's important because if you are the one depositing the money into the Piggy Bank every day, week, month, it may not grow or if it does it's going to probably be kind of slow but when you put it on autopilot and you let the tenants pay the mortgage for you, somebody else is depositing money- I can't fit this stack of cash in here right here but somebody else is depositing this money into your Piggy Bank on your behalf and it is the one of the best ways that I know of to create wealth. I love it, I absolutely love it. So every single one of our rental properties-

Mike: What are these called when they're $10,000, what's that called?

David: A rack?

Mike: A rack? Is that a rack?

David: I think that's a rack.

Mike: So we've got 9 racks here.

David: Yup.

Mike: This is a really good example Dave. This is what we're selling, one of our rental properties, we talked about being a little slower, this is what we're gonna be cashing out from-

David: 90 G's.

Mike: -from the sale of one property that we purchased and it's probably only about four or five years ago.

David: 3 and a half, I'd say 4 tops. Right.

Mike: So again- and again we put some of our own equity into it, we put our labor-

David: We forced appreciation.

Mike: Exactly.

David: With a little rehab but maybe only what? maybe 30 grand total?

Mike: Right.

David: And we're going to cash out probably closer to 100.

Mike: It is closer to 100.

David: So it comes back.

Mike: We're gonna use the stack we had.

David: Yeah, 30 comes back and then let's say 70 so we'll take this 20 off the top and this will be the profit that we're gonna make on that deal. But it's because we bought it, we didn't hesitate, and we let the tenants pay it down for us for a couple years and in this scenario where we're gonna- we're gonna essentially get to make you know 70,000 bucks that is due to the appreciation in the market right?

Mike: And here's the best part of having a partner, you get to share it with them.

David: Hey, thanks Mike.

Mike: And then the government gets their stack.

David: That's right, that's right.

Mike: We chuck a couple over there to the government and we're left with this but again we still got a couple racks.

David: We still got that, we got a couple racks.

Mike: Couple racks I guess is what it's called.

David: That's exactly right.

Mike: Which is really fun.

David: So buying rentals guys is my favorite thing, I know it's Mike's as well. Don't wait to buy real estate in fact I made a video about this this morning over on my YouTube. Buy real estate and wait.

Mike: Okay well let's answer this question because we just got about how we're so lucky we bought it 3 years ago and we're selling now. Well you're just saying wait buy real estate, don't wait, buy real estate, so why is that Dave?

David: Well-

Mike: There's a couple reasons.

David: Yeah there's a couple reasons, go ahead please.

Mike: One, you can't go back in time, alright?

David: Yeah.

Mike: We can't- and we can't predict what's gonna happen in the future. We can hypothesize and we can come up with some relatively educated alerts about what is gonna happen but we don't know. Everyone who's talks about a crash coming or no there's no crash coming, it's different this time and that's what everybody always says but I feel like we might be- it is different this time, that's what's so weird about the current market.

David: Well it's always different. It's different every time because there's different reasons that put people or you know the economy, a better word there, put the economy into a bare market, right?

Mike: And here- and here's why I truly believe it is different. Even if we experience a crash in real estate, we're in a time of inflation and possibly going into a period of like a stagflation where- gosh I can't remember what stagflation is, but inflation, so everyone is familiar with that and that means that the price of everything is going up, right? At 8, 9 percent like really high, it hasn't been that high for 40, 50 years. So if the real estate corrects and it goes down, say it drops 20%, well we're still gonna see increases in all of our prices, all of our inputs are getting more expensive so the cost of new homes has to go up, there's no way it can go down. That's just my- again it can go down in nominal but not in real dollars or real value or whatever the-

David: Yeah I agree. I mean the best hedge against inflation is dirt and some people will argue oh it could be gold, it could be silver, well I don't like those arguments because you can dig more gold and silver out of the ground, right? You can't create more ground, that is pretty fixed. Now there's going to be that guy out there that says oh they're building islands over in Dubai but those islands are costing 10 million to build and they're probably worth 2, right? So it's like that's not a profitable thing to do. The only reason that I would- that I would forecast you know the values of real estate really taking a big dive is if there is some sort of an event that takes a big piece of the population off the table. Now one could say oh well covid was you know some sort of- somewhat of a plague, well not necessarily. The amount of people that have died off from covid and if you've lost somebody I send my condolences, it's obviously terrible right? But the amount of people that have- that we've lost from covid over the last 2 years is not anymore than we would have lost from the flu or the cold or whatever, right?

Mike: Right. And so you can see this with all 'cause mortality, so the data in all 'cause mortality or the total number of extra deaths was not significant.

David: No, exactly.

Mike: Like it was not as significant.

David: Maybe it was a little higher than normal but it wasn't significant like you said.

Mike: Yeah, so there wasn't a significant change so there's not a significant decrease in the population.

David: And you know what affects price is supply and demand in all types of economies, right? So if you have a growing demand meaning people are living longer and they're mass producing and having babies then the amount of people is going to increase. Well unless we're building houses at that same rate, there's going to be a higher demand which is going to bring the prices up.

Mike: Dave here's the big reason and I think that we're overlooking it and why, even when or if or when, no it's gonna be when the market corrects or if there is a big downturn. Why I'm still gonna say I'm fine with telling people who bought because we're telling people to buy at a discount.

David: Oh love that.

Mike: And to create value or create appreciation by buying at a discount and improving the property. So if there is a correction, yeah you might get some of that paper gain wiped away but you are not-

David: Haha I gotta love my little soundboard.

Mike: -going to lose money especially if you've got a 30 year fixed mortgage.

David: Oh my God.

Mike: There's almost- yeah you're gonna be fine.

David: Yeah buying right now at a retail price is probably not the best thing to do, in fact I wouldn't suggest that but if you can buy it at a discount then I praise that, I love that because you know when we buy at a discount we're typically looking for a 20% minimum discount, right? ideally 30% but at a minimum it's 20%, well that protects us against a 20% downturn in the market to still be able to break even on that deal. And if we buy it at a even bigger discount, we have a bigger you know spread of mitigating risk and if we do some rehab and we force appreciation on that, now we have an even bigger spread. So you know ideally I would say try to buy it at 20% discount at a minimum.

Mike: Yeah so again that's why we've slowed down a little bit because it's a little more difficult to find those deals but we still encourage people to buy right now even if it is the height of the market. So that's all we've got man, piggy banks, buying a house is like a piggy bank. 2 or 3 is going to make a huge change on your financial future and 5, 7, 10 houses if you are able to do that over the next 5 to 10 years, it's gonna change your life. Get one a year, it will change your life.

David: It's gonna change your life absolutely. So guys check it out, check out discountpropertyinvestor.com to learn more about how to buy at a discount. That is our passion is helping you learn how to buy properties at a discount and with that Mike it's good to have you back brother.

Mike: Yeah, signing off.

David: That's right. Guys thanks for listening, signing off.

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