234 Who's Your Daddy?: Rich Dad or Wealthy Dad! | REI Show - Hard Money for Real Estate Investors

Passive Income, Active Wealth - Hard Money for Real Estate Investing

Bill Fairman

00:00:01

Hi everyone. Bill Wendy and Jonathan here. We're gonna talk about rich dad. Poor dad. Who's your daddy. Once again, greetings. Thank you so much for joining us on the real estate investor show hard money for real estate investors. We are Carolina capital management lenders in the Southeast for real estate professionals. If you would like us to take a look at one of your projects, please go to Carolina, hard money.com and click on the apply. Now tab, if you're a passive investor, looking for passive returns, go to the accredited investor tab and

Wendy Sweet

00:00:59

Send us some money.

Bill Fairman

00:01:00

That's right. Don't forget to like share most importantly subscribe, and then you can hit a bell too. If there's one available Wednesdays with Wendy it's. So unlike me to be so busy talking, I forget about

Wendy Sweet

00:01:26

The grand page. Yeah.

Bill Fairman

00:01:28

Anyway, Wednesday with Wendy is a volunteer thing that Wendy does to donate her time to anybody who wants to talk about real estate. She gives everyone 30 minutes, but get on the list, her calendar she's booked out all the time.

Wendy Sweet

00:01:47

Not all the time.

Jonathan Davis

00:01:47

All there's times available.

Wendy Sweet

00:01:49

Yeah.

Bill Fairman

00:01:51

Get it while it's high.

Wendy Sweet

00:01:52

Yeah, that's right.

Bill Fairman

00:01:53

Am I leaving anything out? Quest expo?

Wendy Sweet

00:01:56

Yeah, that's coming.

Jonathan Davis

00:01:59

There's a graphic for that.

Bill Fairman

00:02:14

It's coming up soon. Anyway. It is a great opportunity to meet like-minded people. You can get a 30% discount by using Fairman 30 and it's September the 23rd through the 25th. I highly recommend it.

Wendy Sweet

00:02:30

Great networking opportunity. Absolutely great opportunity to learn about all the different opportunities to invest your money. Yep. Right? Absolutely. There's a lot of stuff.

Bill Fairman

00:02:41

So do we have a, a question of the week by the week?

Jonathan Davis

00:02:45

Yeah. So the question of the week, and we'll, we'll follow it up later in the show as well, but in your opinion, you know, what is the difference between being rich and being wealthy? Hmm. And, you know, kind of a, you know, a caveat off of that is what are some strategies that you employ to build wealth now we'd, we'd love to talk about those next week. So anyone that puts it in the comments, we will be discussing it. And

Wendy Sweet

00:03:14

We'll actually be talking about that over the next few weeks. So yeah, there's, we've got a lot of great speakers and, and topics lined up to where we're really addressing building wealth versus getting rich because there's a big difference in the two and, and rich dad, poor dad is what came to mind when, when we were coming up with this and yep, absolutely great book. If you haven't read it and you've been living under a rock, if you haven't, but it's, it's a great book. Rich dad, poor dad by I think that's key.

Bill Fairman

00:03:49

So for breaking

Jonathan Davis

00:03:52

The news,

Bill Fairman

00:03:53

Breaking news,

Wendy Sweet

00:04:06

When was the last time your home was rated?

Bill Fairman

00:04:10

Last time I used bug spray. Yeah,

Wendy Sweet

00:04:13

That's good.

Bill Fairman

00:04:14

So the producer price index came out today for the month of July. That's basically what manufacturers pay for their goods before they're manufactured and then passed on to the consumer. It was slightly below what expectations were. But when you strip out food and energy, food is way up there. Yeah. Energy dropped and we all know that gas prices oil came down.

Wendy Sweet

00:04:48

Not much. We're still above where we should be.

Bill Fairman

00:04:50

Right? No, I get that. Yeah. But the point to this is that it's still into 9%, almost. It was 9.8%. They were expecting 10 something. So it's still high. They're still gonna manufacturers still have to push their cost increases forward. So we're, we're gonna be in inflation territory for, for quite some time. And unfortunately,

Wendy Sweet

00:05:14

If you wanna call it inflation

Bill Fairman

00:05:17

And the fed don't

Jonathan Davis

00:05:18

Call it recession. I mean,

Wendy Sweet

00:05:19

We're not,

Jonathan Davis

00:05:20

It is not a recession.

Wendy Sweet

00:05:21

That's right.

Jonathan Davis

00:05:22

Don't vote this November for not in a

Wendy Sweet

00:05:25

Recession donation. That's right.

Bill Fairman

00:05:28

So, you know, the fed is gonna continue to, to raise rates until they, I, I, I heard the chairman of the Minneapolis fed say that they're getting down to 2%, no matter what. So they will continue to raise rates until they get the inflation rate down to 2%, which means they're gonna continue to raise rates

Wendy Sweet

00:05:49

For a while. Yeah. Yeah.

Bill Fairman

00:05:51

I did wanna touch on the general mortgage outlook what's been going on. So I got this article from the mortgage news daily, and this is, this is based on refinancing. And I said last week it has picked up refinance index was up 3.5% from the previous week. It's largest gains it's June, but it was 82%, less than last June at this time. Just

Wendy Sweet

00:06:22

A little bit different.

Bill Fairman

00:06:25

We, we had Brian on a couple of weeks

Wendy Sweet

00:06:28

Ago, Brian Maddox.

Bill Fairman

00:06:29

And you know, if you're in the mortgage industry and you weren't paying attention to your purchase money business, you're in a world of hurt right now. Excuse me. I

Jonathan Davis

00:06:40

Don't know. You're up three and a half percent.

Bill Fairman

00:06:44

No, you're down

Wendy Sweet

00:06:45

82%. It's all on how you look at it. I was, I was at the airport at 4:00 AM this morning. That's a whole nother story. But while I was sitting there, I was reading about loan Depot, big company. They had 11,500 employees. They've laid off almost half of 'em.

Bill Fairman

00:07:08

Wow. Well, I didn't hear about half.

Wendy Sweet

00:07:10

Yeah. And they expect 900 more. Yeah. I hear they're going to be laid off. Yeah. So they're and they're stopping their wholesaling, which I thought was interesting. Yeah.

Bill Fairman

00:07:19

Well, they're not gonna have too many retail businesses that are gonna be using

Wendy Sweet

00:07:25

Them. Yeah. That'll be selling 'em now, you know, they're finishing out their pipeline, right. They're not leaving anybody hanging. Like it happened back in, you know, oh eight. But, but they're making some big changes.

Bill Fairman

00:07:36

Now, purchase applications decline 1% week over week, but they're, they're just down 19% from a year ago, which is still bad, but that's better than 82. If you're in the mortgage business, that's where you're gonna get your right. You know, your, your workflow from your cash flow. Now I thought was interesting was the size of the mortgages grew from now, these are refinances 378,000 to last, last week. It was 374 or no 374 7 is they've gone up, you know, $4,000. Almost obviously people are taking advantage of still having equity in their house. And in my opinion, if you're refinancing, now it's not rate and term it's, it's cash out. Refinances. People are hoarding a little bit of cash. Yeah. Or they're spending a bunch of their money with credit cards to pay for food and shelter and gas. Yeah. With their cards and they, they need more cash.

Jonathan Davis

00:08:47

Well, I mean, it could be rate term, probably not. I mean, you probably have some five, one and seven one arms that are coming due that are, you know, people have

Bill Fairman

00:08:54

To, if you, you had a five, one or a seven one arm in the last three or four years, you're on moron.

Wendy Sweet

00:08:59

That's crazy. Yeah. Crazy.

Jonathan Davis

00:09:01

Well, well, you wouldn't come due in the last three or four

Wendy Sweet

00:09:03

Years. Yeah, that's right. You would've been, you would've five years ago.

Jonathan Davis

00:09:06

Well, seven years ago.

Bill Fairman

00:09:08

My point is, why wouldn't you have refinanced before then? I mean, you couldn't qualify

Jonathan Davis

00:09:13

Well, remember in 2018, you know, mortgage rates were in the fives. Yeah. I mean, just that's four years. Guess

Bill Fairman

00:09:19

What? I mean, as soon as they got down below three. Yeah. Why wouldn't you have been refining?

Jonathan Davis

00:09:23

Well, I'm saying, so you'd be, you'd be refinancing from 2015 to 2018. Yeah. And yeah, I wouldn't, your rates would be pretty comparable to where they are now

Bill Fairman

00:09:32

Or higher, but that just means they're, they're going to an adjustable and yeah. You might wanna go to a higher fixed rate and be stuck with a higher adjustable and not knowing where it's gonna go. I get that. But I think again, unless you couldn't qualify, you should have already done that. So you're still more on or not paying attention.

Wendy Sweet

00:09:53

Do you have a graph that you wanted to show no online or that's just for us to look at. Okay.

Bill Fairman

00:09:59

That's that's going into our next segment. Oh, gotcha. But thanks for reminding me purchase mortgages prices rose to 416,300 from four 13. So we still have prices that are going up

Wendy Sweet

01:10:15

A little bit and that's nationwide too. So it's gonna be different depending on where you are located. Sure,

Bill Fairman

01:10:22

Sure. So average interest rate for a conforming loan was, you know, between it was 5.47 compared to 5.43, which is not a big deal. Here's what really surprised me though. Jumbo 30 year fixed the rate was 5.9% since when is a jumbo more expensive than

Jonathan Davis

01:10:45

5.09.

Bill Fairman

01:10:47

Yeah. Yeah.

Jonathan Davis

01:10:47

Okay. Yeah. 5.09.

Bill Fairman

01:10:49

Yeah. What did I say? 5.9. Yeah. Okay. 5.09. So barely a tick above five. So since when is jumbo rates lower than conventional rates?

Wendy Sweet

01:10:59

Yeah. Amazing. Huh?

Jonathan Davis

01:11:00

Because most loans are jumbo now with, you know, 4, 4 16 being the average loan

Wendy Sweet

01:11:05

Size.

Bill Fairman

01:11:07

And that really shocked me. Yeah. That is that's crazy. And it, this, this article, and again, it was in mortgage news daily, yesterday, you can get the whole thing, but they were showing these rates with, you know, some points, a little bit of points, but the points were basically the same. Yeah. For all of these, I'm just, I'm just shocked that the jumbos

Wendy Sweet

01:11:29

And the key to all this is how is that really going to affect real estate investors when they're trying to fix and flip properties, you know, how are the sales gonna change if they're, they're going to change. We still through all of this, have a shortage of housing. Yeah. You know, we're, we're still low on the housing. So, you know, things are still gonna be moving along.

Bill Fairman

01:11:53

Well, the, the one thing I want to add to this is that unless you're in California or certain areas of the country bubble units, you're not gonna be getting, if, if you're an investor, you're not getting a jumbo. So if, if those houses are, are moving, it's gonna be for more than likely people that are owner occupied. Sure. Yeah. In smaller units that are gonna have a lot of investors in. So as people are getting priced out of the market, the market will come back to them. Eventually wages still aren't keeping up with inflation, but at some point wages will, as inflation starts to come down and then prices on, on homes will, I don't wanna say flatten, but they'll get more realistic.

Jonathan Davis

01:12:42

Yeah. Yeah. Everything will adjust.

Bill Fairman

01:12:43

You keep beating the same drum here that this appreciation rate is unsustainable

Jonathan Davis

01:12:50

And it's a great time to be a landlord. Yeah. Yeah. That's a great job. Rent have never been higher. That's right. Rent's never been try.

Bill Fairman

01:12:57

All right. So we are going to talk about wealthy versus rich,

Jonathan Davis

01:13:05

Wealthy versus rich.

Bill Fairman

01:13:07

So what I'd like to talk about is the difference between getting rich in the stock market and getting wealthy in real estate. You have any thoughts on that?

Jonathan Davis

01:13:19

Do I have thoughts? I have a lot of thoughts on that. I mean, I'll focus more on the real estate size. That's more of my, my wheelhouse. There are so many different ways to invest in real estate and there's. And so you can be diverse between asset classes be between geography. You can, you know, have cash flow. You can have appreciation. We were just talking about unsustainable appreciation, but you can also have depreciation, which is a tax advantage. You can even hypothecate if you want. So, you know, it's just pledging an asset without conveying title. So there's all kinds of ways. And, and the thing to remember, I think for real estate is where the shiny object syndrome happens in, in stock market. My cousin put, you know, 10,000 in, on this stock and it blew up and he, now he's a millionaire that, you know, that's great.

Jonathan Davis

01:14:24

But the chances of that occurring are so minimal. Like it it's, it's it? Yeah. It's so tiny, but in real estate, you don't get that quick fix that everyone like, you know, like, you know, it's a headline, everyone just wants the headline. I made a, I made $400,000 when I sold this house. It was fantastic. Like that's not typical. It's, it's, it's not, it's a, it's a long process. Yes. And it's a long game that you have to play and you have to diversify yourself. But that long process is the wealth. That is where the wealth is generated. In that process. You can, you can get, become a millionaire in stock market overnight from some anomaly happening that you had no control over. It could have gone a thousand different ways, but it went this way for you. Congratulations. Now, what do you do with it? I suggest take that money invested in real estate, but you

Wendy Sweet

01:15:19

Know, yeah. Yeah. Plus, I mean, you talked about assets and all of that, you know, different classes, but not only that, but you can also choose to be active or passive in investing in real estate, whether you're funds syn syndications, or are you investing in individual people that, you know, are you buying notes? You know, there's

Jonathan Davis

01:15:43

Yeah.

Wendy Sweet

01:15:43

Are, are so many different things

Jonathan Davis

01:15:45

You're buying and selling notes. Are you buying performing assets? Non-performing assets, reperforming assets, commercial, residential, you know, mixed use, raw land, whatever, you know, what have you, I mean, there's so many different avenues you could do. You can do seller financing, you can create a note and then sell that note or sell a portion of that note, sell the first half of it and retain that the second half. Like there's, there's so many options. And again, I'm only speaking from the real estate side that I know, but I don't think you have that many, well, you have options in, in stock market, but I don't think you have, it's not the control tied with an asset.

Wendy Sweet

01:16:26

Right.

Jonathan Davis

01:16:26

That's, that's what we

Bill Fairman

01:16:27

Like. If you're confused about all the different ways and how to do this, how, how many people that are invested in the stock market know all the different ways to invest in the stock market. That's

Jonathan Davis

01:16:39

Right. Probably none of them,

Bill Fairman

01:16:41

Most of them just have money managers that they can say, okay, that sounds good to me. I did. I read an article yesterday from JP Morgan chase advisors and the, in the article, it was stating that the average investor after inflation ends up with about a 2.9 to 3.1% return. Wow. Over the 20 years, because they always buy it the wrong time. They sell it the wrong time. They pay too high of fees, all that stuff, taxes. Yeah. All, all that is involved because they, they don't know. They trust other people to manage it for 'em and if they try to do it themselves, they, they make even less money.

Wendy Sweet

01:17:28

Yeah. They run scared.

Bill Fairman

01:17:30

So through, if you'll put up that graph that shows the home prices versus the stock market since 1900. So it's the, here's the appreciation. And, and let's talk about, and, and I, I couldn't find one that went beyond 2010, really, that would show a long term in the market. So this is since the 1900 stock market versus home appreciation basically. So the red line is the stock market. And as you can see, they run fairly parallel through from 1900, all the way to 2010. So the values are basically the same. Yeah. The prices are basically,

Jonathan Davis

01:18:20

The only difference is you don't have steep losses and gains in the housing. As you do in stock.

Bill Fairman

01:18:27

Housing is, is pretty steady until you get to, you know, 2008 and eight where it went down, but it, you know, it recovered fairly well. Just like the snack market did in 2008. I mean, it dropped two. Yep. But here's a little difference in building wealth versus getting rich. Could you put that back up again, if you don't mind with that, the housing, those prices are the same, but the value is not in the price. The value is in the income that those properties pay. You let's switch over to that graph where I have the, there, there we go. And I know it's kind of hard to read this. This is the 30 year and the 20 year history of the S and P 500. And these are the returns for 30 years. The average return was nine point. I can't read

Jonathan Davis

01:19:24

That 9.84.

Bill Fairman

01:19:25

Yeah. 9.8, 4%. And then adjusted for inflation. It was 7.15. Now this is in price, right? If you're, if you own real estate and you're getting rental income from real estate, do you think you're gonna get somewhere in the seven to 9% return on those investments?

Jonathan Davis

01:19:48

I think most people that we work with get somewhere between seven and 12% on their

Bill Fairman

01:19:53

Investment. Okay. Now that's on the, we'll call it the dividend part on the real estate. Yeah. You're not gonna get a dividend like that in the stock market, your typical dividend paying stocks, number one are not going to follow that same trend line as far as pricing goes. And your dividend typically is gonna be between, depending on the company two and a half to 4% return. Yeah. Okay. With the housing market. We'll, we'll just say in single family, I'm not gonna talk about anything else right now, because the graph is based on single family housing, you are getting a seven to 9% increase over time, every single year with a few exceptions, but over time. Yeah. You're, you're getting that same appreciation as the stock market, but you don't get paid in the stock market until you sell. Right. Well, with real estate, you're getting seven to 9% returns. And then you get DEP profit. When you sell, if you decide to sell, plus you also get the tax advantages. Yep. With, with depreciation. Now, a lot of people are gonna say, well, yeah, that's fine and dandy, but I don't, I don't wanna be a landlord. That's a lot of trouble to get what

Jonathan Davis

02:21:12

Property management companies

Bill Fairman

02:21:14

Are for. That's right. You don't have to do it yourself. You can invest in funds that do the same thing that are that's right. Backed by the same assets. Yeah. Or you can get the same tax advantages that you can buy owning real estate because you essentially do own the real estate because it being an equity partner in a fund, you are one of the owners. Right. And you get those, those same tax benefits.

Jonathan Davis

02:21:37

Yeah. And you say all of those things that are included into the real estate and building wealth, and we, you know, sometimes get overlooked, but the amortizing loan, like you get to buy a property or, you know, or, or refinance or whatever you do with it, with to, and pay that loan in today's dollars for the next 30 years. Like the value of that is immense.

Bill Fairman

02:22:05

Let's touch on. Yeah. Leverage. So you can do the same thing in the stock market. You can leverage, you can get loans to buy more stock and you have money to buy the stock with. Yeah. But what happens if the price of that stock goes down? Oops, what is your lead forage happen? What happens? You either you have to sell

Jonathan Davis

02:22:24

Called. Yeah.

Bill Fairman

02:22:25

You either have to sell, or you have to put up more money because that leverage is based just like on a house, a percentage of the value. So if the value drops, you have to bring your percentage back up again by either adding cash or selling the asset. Yeah.

Bill Fairman

02:22:41

And the housing market, it doesn't matter if the price of the house drops, they're not calling your loan or making you put up any more money. No. The only time you would have to put up more money is if you had to sell for some reason and you owed more than, you know, what the mortgage before, or, or yeah. You couldn't sell it for what the mortgages were. Yeah. And, and again, and I'm gonna continue to quote this until the day I'd die, because it's a great quote from David Phelps, the house doesn't care what it's worth.

Jonathan Davis

02:23:11

That's right.

Bill Fairman

02:23:12

It's still producing an income. Yeah. And even in down times, recession periods, people still need a place to live. They still need to eat. And in real estate, you're providing them with a place to live. Now, there is very important. Sure. If you're in certain states, they may, the government may come in and say, I'm sorry, these people can't afford it. And we're not gonna let you a victim.

Jonathan Davis

02:23:41

Yeah. Yeah. That's why we don't like to do business in those states. So you have to be,

Bill Fairman

02:23:46

You know, due diligent about where you buy your real estate.

Wendy Sweet

02:23:50

Right. Right.

Bill Fairman

02:23:51

Very important. So that does happen.

Wendy Sweet

02:23:55

But not in most places. Yeah. That's not happening in most places.

Jonathan Davis

02:23:58

Yeah.

Bill Fairman

02:23:58

And most people wanna pay their rent. You are gonna get people that play the system. But in most cases, you're gonna get people

Wendy Sweet

02:24:06

That wanna pay. You know, another thing that I think we should touch on too, is, you know, when we talk about building wealth, you talk, we were talking about all the advantages you get when you're in real estate versus being in the stock market. Well, if you, when you're getting into real estate, that be careful about how, what dollars you're taking money from, you know, are you investing with a IRA, 401k, or are you investing with cash knowing that if you're owning property, you don't really wanna use your IRA to own the property because then there's so many other advantages tax advantages that you're not gonna get using your IRA.

Jonathan Davis

02:24:51

Yeah. The

Wendy Sweet

02:24:51

Depreciation ver versus using cash for that. So, or

Jonathan Davis

02:24:57

Someone else's

Wendy Sweet

02:24:57

Money. Yeah. So leverage, so make sure you, you, you are investing from the right pool, buying the right things from the right pool. Does that make sense? Yeah.

Jonathan Davis

02:25:08

Yeah. Absolutely.

Bill Fairman

02:25:09

There are rules you have to follow with self-directed retirement accounts. And we've always found that if you're investing your retirement account, be a lender in a business that does is not tax advantage. Then that's where you put your IRA in. Yeah. If you're investing in something that is tax advantage, you're not getting that advantage because you're already using money. That's tax deferred or tax

Wendy Sweet

02:25:38

Exempt. And it's not a bad investment. No, it's just not as, Wise's not,

Bill Fairman

02:25:42

You're not utilizing your, all the benefits. Yeah. All the benefits entitled. Yeah. I have one other thing I wanted to talk about on this subject, but I'm old and I forgot

Jonathan Davis

02:25:53

Why I'm thinking about it. Let me share the, the question of the week again. So we, you

Wendy Sweet

02:26:11

Type fast. I know, right?

Jonathan Davis

02:26:13

We want to know, in your opinion, what is the difference between being rich and being wealthy and then what do you do to achieve being wealthy? We assume that's what you want.

Wendy Sweet

02:26:25

Yeah. So how can people answer this question? You can do it right online watching this.

Jonathan Davis

02:26:30

Yeah. You can believe in the comments and we'll, we'll pull it from the comments,

Wendy Sweet

02:26:33

Whether we're live or recorded. It doesn't matter. We're still gonna see it. Yeah.

Jonathan Davis

02:26:37

We're pull it in. Glad

Bill Fairman

02:26:38

You didn't say dead.

Jonathan Davis

02:26:40

We're gonna talk about it next week. Cuz we're interested to see what other people are doing. Yeah. What, what strategies you all are employing to build wealth or get rich. I don't know what, whatever you wanna do.

Bill Fairman

02:26:53

Excellent. So

Wendy Sweet

02:26:55

Nothing wrong with both.

Bill Fairman

02:26:56

Does anyone have a last word?

Jonathan Davis

02:27:00

So last word. I don't know. Like

Wendy Sweet

02:27:09

Hypothecate yeah, that was a good one.

Bill Fairman

02:27:13

That's it?

Jonathan Davis

02:27:14

Hypothecate hypothecate do it if you can, because you do not have to convey title

Wendy Sweet

02:27:20

And then for next week.

Jonathan Davis

02:27:22

So we're gonna, we're gonna close out here. It's been great. Hope. It's been entertaining and hope. You've learned something next week. We're going to have Dean Rogers on with us and we're gonna be talking, you know, former

Wendy Sweet

02:27:36

FF N NFL football player. Oh, turned apartment. Yep. Fish a good one.

Jonathan Davis

02:27:44

Yeah. So, so we're gonna talk about building wealth versus getting rich. It's kind of a thing that we're going with here. And again, we'll have Dean Rogers with us. So guys it's been great. If, you know, remember we are Carolina, hard money, Carolina capital management, go to Carolina, hard money.com and you can click on the investor tab. If you would like to invest into our fund, a passive investment that gets outsized returns. You can click on the borrower tab and fill out an application if you would like to borrow money for fix and flip new construction, short

Wendy Sweet

02:28:15

Term and long term, right? Yeah.

Jonathan Davis

02:28:17

Multifamily. And we do long term rental loans as well. So it anything else to add guys,

Bill Fairman

02:28:23

See you next week.