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Coaching Call: High Income + 500k Net Worth

What’s up folks. Now, you guys are in for another treat here. It’s another one of those coaching calls, in which you guys get to spy on somebody and secretly critique them on your way to work. Or maybe you pull this up on your iPad as you’re driving and looking at their personal financial sheet. You can do that on YouTube.

We’ve also put this on YouTube, so you can see the spreadsheet and the numbers, how much they’re making this particular person. We’re talking about a net worth of half a million. They make a pretty good salary, $20,000 of income. And all the other specifics you can see on the YouTube channel.

If you guys like. And you guys don’t want to join our exclusive family office ohana mastermind group, which I don’t know why you wouldn’t. If you’re investing more than a quarter million, half a million dollars. I think it’s a no brainer. I think it’s freaking insurance for going out there and walking off the beaten path of getting out of traditional investments into alternative investments with.

Okay some of you guys invest with random strangers out there crazy that just have a good website. But if you guys like these types of coaching calls you guys can volunteer, send us an email at team@simplepassivecashflow.com. We’ll get you guys set up with them. We can change your name.

We can even create a. But a face on you, apparently zoom can put faces on people and hide your identity pretty well. We also put all these coaching calls in the members portal, which you guys can get access to by signing up at simplepassivecasual.com/club. If you sign up there, you get access to the member’s portal and we have a page where we arrange home.

It must be like over a few dozen of these coaching calls, all nicely arranged by net worth. You can go by your net worth and find. Start listening to this stuff and see your financial life unfold, because as I’ve learned, people think they’re special snowflakes, but in terms of money, it’s the two big ones, what’s your net worth and where’s your monthly income coming in and what’s your net, everybody’s on the same path and journey to financial freedom and it’s nothing special getting there. To me, I’ve figured out the quickest and the safest way to get there. It’s a way of smartly using it that some people are a little spooked out about using. Check out my article at Forbes, I wrote about debt, I think simplepassivecashflow.com/forbes.

I have all my articles in there too. Enjoy the show folks. Check out all these other coaching calls at simplepassivecashflow.com/club, and then you’ll get access to that. Reach out if you guys want to do one of these on your own.

Hey, simple passive cashflow listeners. Today, we are going to do a free coaching call for our buddy Nate here, who is also a pipeline club member. And probably in the next 30 minutes, we’re going to go through his personal financial sheet and get them on a good action plan. And maybe this might be a good model for you to follow.

Maybe it won’t, but hopefully it helps one person along the way. So thanks for jumping on Nate. No problem. Give us a little overview . So I’m a dev ops engineer, which is essentially a system engineer and I work on website Make, with my bonus and make 150,000, my wife has a good job as well. So two of us make pretty decent money for the bay area, and then we have, we had two houses in California. One was our primary residence. So we sold that last year and the other one was our old primary residence, which we are about to sell. I don’t know what else you need to know. Some people are watching this on the YouTube channel, which I would recommend, but for the podcast folks, we just tell them how generally, how old you are.

That’s it. So where you’re at in life. And, let’s see, I’ve been married. I have a three-year-old son. We live in Berkeley, California. Basically I’ve been doing what I do for computers for about 10 years. I worked in biotech after that, before that for about seven years. Pretty simple.

And actually people don’t know what parts of this are fake. They were trying to protect the identity of the real person, if your real name is Nate, but if we just made that up, this is a very typical sample of a bay area investor. So I think this will help out a lot of people.

Moving forward. So right now I have displayed on the screen, the personal financial sheet summary, a good overview, a lot of the other tabs feed into this one, a good overview of what’s happening. Where are you at right now? Because different strategies work for different folks. No part of the simple passive cash flow is, it’s very simple.

If you’re hiring high net worth high paid professionals start with some turnkeys and go on to syndications, but there’s all a lot of little different nuances along the way, a lot of different wealth hacks. And hopefully, you can, we can get a good conversation going, but let’s just figure out where you’re at right now.

So the upper left corner here is the. So you’ve got some, you’ve got some, a little bit of cash savings, hundred, a little over a hundred grand. And you got some real estate holding $600,000 properties that the primary residence or we rent. So that’s our current rental that we have. Okay. Good for you.

I definitely recommend people rent and primary markets. Yeah, we took that advice from you. Yeah. You guys want to read that article that I paid someone 500 bucks to write from its simplepassivecashflow.com/home. Cause I really need to get that message out. We like it. We actually have a, it’s a nicer house that we live in now and yeah.

I don’t know if I told you to do that, usually. And here’s the issue with buying a big primary residence. You’re taking that in the a hundred and maybe in $200,000, a down payment, you could have bought five to 10 rental properties, each cash flow and a couple hundred bucks at least. A lot of spouses don’t care about that.

They’re like they wanna own their home, but then when you show them our market would have been 3000. Let me up the ante and let me, let’s go around and place that’s four or $5,000. Because financially, that makes more sense when you look at the numbers. So that, that usually gets them. My wife’s completely on board.

She’s pretty savvy with this. Or at least more subtle than I have to, you will be successful in life. I, so here, liabilities, and it stacks up with that. The 600,000 rental with it’s always paired mostly. This a $312,000 mortgage, I’m assuming that’s connected. So you’re about 50% loan to value on that.

Then you have a HELOC on that thing. Are you tapping at equity or? I know, so that’s some low hanging fruit and we can talk about that. Sources of cash. Here’s like your cash flow what’s happening on a monthly basis. So you got about 20 grand coming in every month. Which a lot of people would save is very high, but for the area that’s pretty much average.

It’s crazy. Yeah. It’s crazy. And I’m just curious. How much you’re paying for rent? Rent is 4,000. Okay. Okay. Not the nine. How are you getting the 9,000 in there? That is also schooling for my son okay. Okay. So between those two, it’s about 65 or about 6,000. Okay. So this, the private school is what like 30 grand a year, 40 grand a year.

Let’s see. It’s about 2 18 52. We changed it. So it’s a little less than 2000 a month. So that’s 25,000. Yeah. Yeah. I know. That’s a lot of people in Hawaii. You have to do that because public schools are not the greatest. Here in Hawaii, but, yeah, but yeah, you add it right on there.

I was like, whoa, man, you really live in, imagine there, but it looks like that, but that makes total sense. And that’s a decision you guys make and it’s not a bad one. Yeah. So you’re running what I asked a lot of people a lot of time. I don’t want to care how much you make. It’s more, this, the cell. Q 53, that Delta between how much money you’re making and how much money you’re spending. And this is a very healthy number here. You say that you’re able to save about 50 grand a year from average people. You’re like the top 1%. But I would say that from most of my investors.

That’s probably what most people have to say, but I’d say like the 50% of people who got their stuff going the right way. They’re upwards to that. It’s very good, and I would say when you’re above the $50,000 level, depending how much net worth you already have. And if you’ve already been doing this a little bit, you’re likely to be financially free in three to five years. So that’s a great win right there. That’s what we’re shooting for.

But you got, you had some vacations here. Is that kind of taken out of that? And big expenses, I think that’s it. That’s what gets me personally. I don’t have a budget. We don’t go on vacation, so we, yeah. Yeah. We actually like our house. That’s one of this, why we spend money on houses because we like to be home, yeah. Yeah. Okay. Okay. What about other big ticket stuff that might sneak in and knock that five 50 grand down to 35? That’s pretty conservative. I think that’s like we’re not really doing much. I just came home. Cook, eat, enjoy, have friends over.

So it’s nothing really cars paid for. I walk everywhere kind of big ticket items. Are you thinking that maybe I’m missing something so well, sometimes, a lot of times for this is, I’m just speaking for myself. My own personal thing is I have a big net cash flow, like how you do, but sometimes, big expenses can come in.

Especially if I go pay for something like a mastermind or something like that. And at the end of the year, I’m like I should have had a lot more than this. Like the animals are cash flowing and everything, but I didn’t even end up with how much I thought I would. There’s holes in my pocket, but I just, I don’t budget.

I don’t like that stuff. Okay. I think we kind of budget, but it’s just I think the biggest savings we have right now is we went from a nanny to putting our son in school. Probably 15,000 right there. Cool. So let’s dig in here a little bit. You’ve got a hundred thousand dollars in cash, so that would probably be the low-hanging fruit there, but I know you probably want to keep some of that in liquid cash, maybe about 20 to 40 grand.

Yeah. Yeah. We’re thinking of 40, but yeah. Yeah, but there’s definitely 50 and here that should be going out to something right away. Wholly, see, here’s your, here’s a rental property. And here is also some low-hanging for, you’ve got about 50% LTV. Have you looked into doing a HELOC on this thing and tapping the equity and the, so we could certainly do a HELOC on this, but we were thinking of selling it. That’s actually a conversation.

You’re interested in that because I don’t know. I feel like selling it at this point is probably the best idea, but yeah, this is like a war zone property. The $600,000 property in Oakland. It’s in the foothills of Oakland. So it actually has a nice property. You could see the San Francisco golden gate bridge. That’s pretty nice. It’s just a, it’s in a transitional area. It’s not a dangerous area. And how much rental income is it bringing in every asset? That’s the point because we rent it out to somebody we know, so we just have them cover the mortgage originally. And that was a big mistake on my part.

And I don’t want to use it right now because I like the guy, but. We’ve talked to him about it a bit. And at first he was like I’ll just, I’ll pay more in rent because the rent prices are ridiculous and he’s getting a good deal. But then we thought about selling it and he’s interested in buying it.

So we’re having that conversation right now. So yeah, they always say that. Okay. Let’s see, I’ll go. But here’s what I. Right now it’s like April or May you probably want to be selling this on the market in the summertime. That’s when you’re going to get a peak price. California, it’s like Hawaii.

There’s not really a season, but you definitely don’t want to, summertime when everyone’s transit kids are transitioning. I would, especially when you want to be political about this and get your friend out in a cordial way. The conversations just started yesterday. We started this conversation a little already about a month ago.

So yeah, I would just, I know, just from a manners perspective, third party, I would say Hey man, go look for it. Just start looking for a place I’m going to check in two weeks, what you’ve been seeing and we need to make a transition plan. I need you out in 45 days or whatever.

Okay. Yeah. Cause it. You can tap this. And I know the Oakland, the California market is getting a little soft right last year. The mistake I think most people would make is you mentioned it. This is you’re probably buying on the line where you’re in a transitional area and people say it’s going to go up.

We can do the numbers later. And I don’t think we’re going to do it today. But if you were to take that $300,000. And go put it on something else. You’re going to five X that whatever. And even if they build something cool, right next door. Yeah. I’m not planning on appreciating this anymore.

I think it has gone up a lot since we got it. So we’re comfortable and happy with where it’s at. Yeah. So you guys always had this as a rental. I guess you don’t have to say. Like deducting the depreciation, all that stuff. So this is actually our original primary residence. And then we lived there, so I made a mistake when I sold it.

I didn’t realize this. I made a mistake when I sold them. I should’ve sold them in a different order and waited about a year. Cause I think we could have done Mr. Capital gains tax, but when did you move out? We moved out about 2016. He bought it in 2012. You lived there for four years? Yeah. I think the rule is, as long as you live in it for the last three to five years.

You can qualify, but talk to a CPA. I think the problem is that you can’t take capital gains tax two years in a row. And I took you on last year when we sold the other house. I don’t know if you can take another capital gains tax and you have to wait. I think you have to wait every other year, but it could be wrong.

Not following. Maybe I’ll know what I’m talking about, but we paid, we instead of paying capital gains on the last house we did or that we, I don’t know what the term is, but we didn’t have to pay capital gains last year when we start our primary residence, the old house, we just moved out. And then if we were selling this house now, Even if we, because we lived there, I don’t know if we could do that twice in a row, pick up the weight every other year.

Oh, I don’t think it matters. Okay. That’s good. That’s great to know, but I’m actually unsure about this cause I own the property and I rent it out for a couple of years. Okay. And I think I made a mistake there. I should have moved in for a year and they wouldn’t have to pay taxes on the gain or I don’t know if you would have appropriated it.

If that were the case. Okay. Yeah. I was trying to read about this too. Was one of the questions I was going to ask you about, but yeah, just talk to, just talk to a CPA who does this all the time. Okay. You don’t talk to a 1031 guy, they’re just necessarily on a tender one. That’s what they did to me. I’m not interested in that either, so yeah. Yeah. It might be. I’m not suggesting that I don’t call this tax evasion, but if you’re renting out to a family friend, in a way you’re living there. I don’t know. This might be a little borderline. Maybe we shouldn’t talk about this.

You know what I mean? Technically you’re living there, especially if you’re doing this as a charity and it’s a friend, maybe just you guys move in for a year. If they hit this three out of five, Your role? What did you buy this thing for? See the original purchase price. I probably should have. I probably should have started there. See, I took 10. Yeah. See, there’s a lot of capital gains there. You have $400,000 of capital gains. Have you guys been depreciating it every year on taxes? I don’t know for sure. To be honest with you, her mom does Texas, oh it sounds like if you had a new CPA, that’s the difference?

I think that if you’re depreciating it you’re definitely doing it the, on the up and up way. And I don’t think you can play these games where you have a family friend there and you’re technically still living there. But I would like to be on the up and up for sure. Yeah. Yeah.

And this is a, but this is a big gain, right? 400 grand, 50%. I don’t think 1031 is your answer. I don’t like those at all. Okay. But it’s not big enough to do like a delayed sale trust thing on it that you just might have to take it on the chin and just pay the taxes, but spend the hour talking to the right person about this strategy and Hey, can I move in one to hit this one year to get this three out of five year rule?

Could you’re really close to being. When did you say you moved out? 2016. Yeah. Yeah. There might be something there. So look into that. Maybe shoot me an email later. I can connect you with my guy and he can ask him straight up. So I’m saying you have 50 grand from your liquidity and then potentially another after commission. You’re going to have maybe another 200 there comfortably. So two 50 at very least you have to deploy.

And then this is the same one, right? Yeah. See, it’s just an auto fallback. So that’s your war chest. But. I think where you’re at Eden, do you have any experience with any kind of out-of-state rentals or anything like that? No. That’s one of the reasons why I was originally looking for one-on-one coaching and the mastermind group. Yes. So I think you’re looking at your net worth and yeah, I think actually, David looks at your net worth, but now that it makes sense.

You’re in this limbo land. I don’t know if, eventually your guys’ salary is high enough and your, private places are going to be yours, and you’re obviously very busy, but I would, I think your next pass would be to pick up a turnkey rental and just get some experience under your belt. Okay. That’s what I was thinking. Yeah. I was gonna talk to you about that. Yeah. Yeah. So let’s talk about that. We’ve got some bullets and now we need to figure out how we’re going to go fire these things and go acquire some properties. So what is, what have some things you’ve done so far, and then what’s your tentative action.

What about us so far has joined the mastermind group. I’ve been reading different things with your website? Yeah, there’s a, I’m at a point where I need some guidance. I don’t, I’m not exactly sure where to start, so that’s why I’m here. That’s why I’m talking to you right now. Okay. Okay. No, that makes total sense.

Because most times people they’ll come into the mastermind after. They’ll listen to the podcast for sure. But then they’ll, there’ll be con there’ll be doing some books and podcasts for about a few months to six months. And they’ve already got a formulated plan in their head.

They’re gonna learn about turnkey rentals. They are, they, and they already have that realization. I am sure you have already done this where you live in the bay area. You’re not going to find anything in the state. That’s going to cash flow. That’s not a D class. For sure. Yeah.

So the next logical step is all right, where do we buy? Are there any markets in your head that you’re eyeing? So I know the markets that people say to they’re interesting, or you should look at, but I don’t know how those decisions are made. That’s one of the ones, one of the main questions I was trying to figure out right off the bat was like, how are people finding markets?

And. What markets do. And why are they finding the why? Why is that a particular market? Like Kansas city, Indianapolis? I know I’ve read some of the stuff that people say, but I wouldn’t know. If you give me a map, like where do I begin looking at it? And then finding a good parking spot? Yeah the simplistic way I put it is you’re trying to find properties and secondary markets with robust economies.

So secondary markets or, places like Kansas city, Memphis, Indianapolis, Atlanta. You can categorize it by population size. Do you know? Not like the mega cities, but like at least a hundred thousand people good size. And then of course pair that with the robust economy. So Detroit’s the secondary market, but it’s not a very robust economy.

So that part I understand. How would you find how to prove yourself that this economy is robust? Like, for instance, Kansas city. Indianapolis. What are you looking at to prove to yourself? Oh, this is a real positive. I know why you would probably say to choose not. Oh you just look at one thing I look at is like fortune 500 companies in that area.

What kind of industries is it like? Las Vegas is not very economically diverse. City, it’s a lot different from tourism. There was a cool try. I had in the last investor quarter letter, video and site civil, passive cashflow.com/investor. Quarterly. I can display that real quick. Is that the one from last night or? Yeah. One from last night, but I don’t have, I don’t have a list for you, but.

But my thing is There’s already a list out there, it’s on a spoken list that people are like, oh, we just like to stay in these types of areas. Yeah. And the nice thing about that is that there’s already, if you follow the footsteps with other people have done. You don’t really have to recreate the wheel. There’s already property managers, brokers. And that was one of them. That’s one of the questions I had too, is if you’re investing out of state, how are you finding contractors? And this is through your network. Here’s that, that image. The green ones are supposedly more diversified job markets. The red ones are not, I don’t really agree with salt lake being a diversified market.

And I also don’t agree with Atlanta. Atlanta has got it all. It’s got like class C. Worker blue collar workers working in industries, manufacturing, like the Mercedes plants and stuff like that. And it’s got a lot of white collar workers to a very diversified market, that’s why you think Bloomberg made this thing.

I just took a lot of data points and we see the same things popping up again and again. But then you’re also looking for tertiary markets too, because even the secondary markets, everybody’s flocking to now. So Chris, on this one, for instance, they say Buffalo is a good bar, to provide market, but then isn’t that the one where the population went from 500,000 down to 250,000 for the last 15, 20 years or something like that, you might be right, but already am not even looking at it because it’s a primary market.

Brilliant. Okay. And in Baltimore is DC, right? Buffalo. Yeah, primary market. Okay. That’s not to say you can’t, it’s not going to be appreciated, but that’s just not the game I play or what I recommend. Yeah. I’ll just stick it out, looking at this map that stuck out to me when I saw it the first time. Yeah, so that’s my recommendation. And then, just taking this map, right? Kentucky, Memphis, Oklahoma city, New Orleans, Atlanta, Jacksonville. What you’re trying to do is you’re trying to narrow it down to a couple or at least one that you’re going to go in there and build relationships with brokers, property managers, you can’t do multiple, you can’t do three or more.

I don’t have time for that yet. So you’re being a typical engineer and this is what I do. You’re like, all right, I’m going to start with this big funnel. I’m going to start with 30 markets. And I’m going to pick the best, like that’s gonna surely take you a long time and you’re likely to arrive at the same answer where you’re like you know what, screw it.

Everybody talks about these five. I’m going to pick from those five and just whittle it down to one or two. Okay. I think that’s the better approach. Okay. But engineers, we like to get all this data and, in the, who we share drivers, all kinds of data from way back when you can, kinds of power rankings and whatnot. But I don’t know why I even put that in there. Just confuses you guys even more. Okay. But that the time and energy should be spent on connecting with brokers and property managers. Okay. How do you find, let’s say in Kansas city or something like that, how would you go ahead and find a broker and property insurance and to throw your network against yeah. People, referrals and this is why I always say the most important thing is to network with other passive investors. People like you and me. Because those are the people who are gonna, have the past pay for you. But here, the problem is you can’t just hand these guys, like there’s a, we have that free Facebook group.

As you pay for what you get for something, some of these guys, they just asked for what brokers you are working with? Man, I’m not going to help you out. You’re just like a taker, but it’s hard in the beginning because you don’t know very much. So you need to get educated. You need to put in some work. See there’s an even value exchange. So you can go to a little bit more of a student investor who potentially has a big vendor list. And become friends and how do you do that? There’s no tricks to it. You just become, build a relationship, a genuine relationship, go freaking figure.

Makes sense. Yeah, there’s a lot of tricks and hacks to get this from people or get it on your own, but I don’t think it’s sustainable because what you want to do is you want to try and build a mini micro tribe of a few. All investing. For me, it was like Birmingham. There were like a few people that were all messing around in Birmingham. We all knew who the property managers were. And then if something went wrong, someone wasn’t performing, we’d all move like a mini flock to a different one, or we didn’t know who to tell. So that’s the more sustainable model. And hopefully when these guys get tired of turnkey rentals and go to bigger stuff, you’ve had.

That’s a solid relationship to move forward with them. Okay. But any other tangible, more granular stuff I left out there. I know that’s a high level, right? That’s more esoteric. Yeah. I don’t know. I just like the process of just getting started, it’s to start looking at some of these properties that they have called them up, yeah, I guess that’s the process. That’s what I’m asking is, find someone there in the network and NASA like maybe, Hey, who do I contact in Kansas city per se or Indianapolis, and then discount. Started to talk. There’s people who are more than happy, I’m sure to sell it.

But what I understand is that these things go pretty quick. That’s what I’m seeing on the mastermind, like their properties come up and then they go for it. So you have to know what you’re looking for and, in a mastermind I’ll help you out for sure. I’ve got my vendor list. I keep it close to the chest. And people like, I like talking with people and doing those free intro calls just to get to know people. But I don’t know, like lately I’ve been a little worried of just alright, I, use these guys in Birmingham, use these guys and, wherever.

Because these are my relationships. I don’t want to be a jerk over who just is going to call up eight different Turkey providers and waste them. Guys time. Yeah. So that’s what I’m thinking, you’re the mastermind, I’ll help you out. I’m always working to build new relationships. I’m actually working on a new one in Pennsylvania, rural Pennsylvania. So where do you have your first one? Yeah. I think you had a property in Pennsylvania. Yeah. So that’s where that relation came from. We worked on some deals out there and then they’re pretty helpful. So I trust them and that’s what’s more.

Yeah. And if I can build like a long-term relationship where they know that a lot of you guys will come back, then that’s a good, solid relationship that, it’s more of a long-term thing, but I don’t, I want you guys to struggle a little bit, because this is how you learn how to do it, but. I also want you guys to hit success, right? So there’s a balance between how much I help you guys. If you want me to do everything, yeah, I can do, I guess I can do everything, but maybe that might change in the near future as my bandwidth fills up. But, the more you struggle, the more you learn and the more you learn, the more you progress 5, 10, 15, 20 years from now.

But I think what I try to do is so I’ll set you up with some good reputable people. So you don’t have to go through the whole list of turnkey providers. At least, you’re working with people who are decent, right? They’re honest people. Men, what I suggest is like you just get their inventory lists and then you just see where the water line is.

All right. Cause when I was buying, I was, $90,000 properties they’re renting for nine 50. I knew I had it all on a scatter chart and I knew 1.1 rent evaluation. That’s my number. I don’t know where that is today. And I know where it is. Cause he sees where, I have you guys do the spreadsheet. And this is where the water line is, what a good deal is. You’re not going to find an amazing deal. It’s tricky rentals, but you don’t want to get a sucker deal. So when a good deal comes up, you’ve got to act pretty quickly, which may be in a matter of a few hours or a few days, depending on what kind of relationships you build with them again.

And then you pull the trigger. But I think No more times than not a newer investor thinks that they need to close on the property. But for me, it’s more there’s a good chance. Maybe 30% chance. You probably there’s something that comes up and due diligence that you can’t work, negotiate your way through. So I’m probably a lot quicker to put a contract under. I’m more certain I’m more. All right, lock it up. Let’s put in going to contract and let’s get that inspector in there and let’s see what’s under the hood so I can act quickly. And that’s how you should be able to get. Okay, fair enough.

It’s dating, right? Like it’s been awhile. The strategy goes, you don’t get married after the, before asking them on a date, on a lot of dates, same thought here. I gotcha. Just cause you go on a date and ask doesn’t mean you’re going to get married for sure. Any other questions on just picking prop properties up in that kind of way? Yeah. So I think the other question I had was if you’re, the recommendation is always to get from you is to get a turnkey to start, but then like a high level, what do you, what’s the progression there? So you get a Twinkie, you get, get comfortable working out of state.

And then I don’t want to keep buying turnkeys as they’re applied at the. Yeah, like we’re talking about right there. Not that they’re not the best, right? Yeah. Yeah. And, but the beauty of this is once you get one turnkey and you get it going. Yeah. Sometimes they don’t work out. I would say like one out of three times you might buy a dud. It just gives you some problems, but overall you’re hitting that nice returns on average. Okay. Definitely way better than the stock market. That’s what. You’re talking. But then here’s the path. And a lot of the investors that I started working alongside when I started there’s this path of you do the whole burst strategy by rent rehab refinance, which I’m not a fan of at all for high net worth individuals to be buying like 50,000 pieces of junk because the exit strategy isn’t there.

Like you can have a portfolio of 40 properties of 600 or $60,000 each, but that’s cash flowing, but there’s a cap ex, that’s going to hit you on this stuff somewhere between year five and 15, and now you’re going to pay back all these returns. It’s just not a sustainable way of investing, but it’s a way of doing it. And I guess nothing is wrong with you. If you can prove me wrong with the numbers, but you’re going to go down this path of burning and creating value that way, because maybe you like doing that. And this is where you’re starting to do it and you start to figure out if you like it. And if you’re good at it, me personally, I don’t like it.

And because I don’t like it, I don’t spend the time doing it and I never got really good at it. Okay. So that’s why I went to be more passive in a bigger deal. And that’s the progression. But we don’t know until you do this prerequisite, this is the pre-calc to ease and calculus. So I’m not, so I’m not going to let you go by Hey lane, they want to sell me. And I have a quarter million dollars. That means I can buy 1, 2, 3, 4, 8. I can buy 12 rentals for probably 1200. Pretty solid ones tomorrow. I would probably be like, no, don’t do that.

At most maybe by four and let’s pause and think, and let’s come back and talk six months to a year from now where you w where do you want to go? What’s your thoughts and feelings and how things are progressing. Okay. So that’s, you know what that said? I don’t think you’re going to be able to invest that quarter million dollars in the next six months.

Maybe, probably even a year. Okay. So what’s a good recommendation for parking, nothing instead of just having sit and savings like AHP is a good one, simple, passive cashflow.com/hp. They don’t sponsor me anymore, unfortunately, but, yeah, I still think it’s a good place to store some cash.

For you, I wouldn’t stick more than a hundred grand in there. Okay. I think let’s just say, let’s just assume now I’m getting more high-level strategy where the money comes from. I would take the money out from your liquidity and invest as soon as possible. What is that?

The 80 grand. And in the back of your head, you can pull a HELOC Okay. You need from that rental property, right? Yeah. So I would totally be fine with you running your liquidity for me. Your cash reserves are pretty low, maybe even 10 grand. You see what I’m saying? Yeah, for sure. It was still saving a decent month or month and the house sale, maybe you delay that a little bit to next year. I know that one’s a tough one. It’s not like I see a lot of guys with big 401ks and you don’t have that. Where is that? But she’s still at the employer, right? That’s she’s out of that one. Oh, okay. Where did that one go? If you go to the summary. A little bit right there it’s like 24. So she has left her employer, whatever you don’t roll it over into a new TSP or 403 B or 401k. Yeah, she’s just sitting there. I would take that out. If you had more than 150, $200,000, I’ll be very strategic on how you take that out. Like tickets slowly, you have to look at your whole taxes.

There’s brackets, right? They’re like full brackets. You’re probably in the second to highest one. Now. I don’t know how they exactly fall. Yeah. I don’t know. I think, yeah, probably close. Yeah. So if you take this thing out this year, you’re probably going to the highest one or maybe even the second highest one. We want to keep you just from going to the next one. So see what I’m saying. You got to be strategic on how much you take out of that thing this year. So say I don’t know what AGI is. Are they changed all the time? And I don’t know what it is for married couples. It’s AGI adjusted gross income.

So let’s just say the highest one starts at two 50 and right now you’re at 200. Okay. As your AGI, I would maybe take this 91,000. I would take 50 grand. So you just stayed below that. And then the next, the plan for next year is to take the other 40. So you’re always slip it under the radar that the red, so we’re over two 50.

So why don’t, I don’t know. You got to look at the tax. A CPA should be able to help you out with. Okay, but they’re not, CPAs are not strategy guys. That’s where you got me, but I don’t know the exact brackets, but you get the gist of what you’re talking about.

You’re smart. You can figure it out. So that would be a way to play that, to take it out slowly. ‘ cause you’re looking, you’re not going to, we’re already halfway through the year. You’re not going to be able to deploy something. You’re not going to be able to deploy it. You’re not going to, I don’t see you buying more than three houses in the next six months. So this is probably a 2020 plan. Okay. But then also remember you also have to have been thinking about this in the back of your head. Like I do think you should sell that house right away. Yeah. So that 300,000 or $200,000 of gains comes right on your income. So if you’re going to do that, it’s going to blow up your AGI. Yeah.

So I wouldn’t touch, I wouldn’t take out that 4 0 3 B money. You know what I’m saying? Yeah, for sure. Unfortunately, with that house sale, you can’t be strategic. And how you take it out, you got to take all that. Yeah, that was a, I think I could’ve done that differently, but that’s how you pay to learn, yeah. Yeah. Am I clear here? You get the fundamentals right when I’m trying to, yeah. I guess the question on the 4 0 3 B is, do you get penalized when you pull it out? I don’t know how that works. Yeah. Number one, you finally get to assess the taxable income, right?

Because this is all post tax. You don’t pay taxes on the loan. But yeah, there is a 10% penalty, but I wouldn’t call it a penalty. We’ve had this conversation with my wife and I have had it before. So yeah, it is a very emotional conversation because people think it’s like a sin to take money out and they call it a penalty.

Now I’m not allowed to do that, but the numbers don’t lie. If you can make money, if you can make 20 to 30% in a Turkey rental, Who cares about the 10%. You’ll make that back in 12 months and the rest is all gravy. Yeah. Good point. So follow up, do the numbers yourself, the numbers tell you what to do.

But if you’re going to be selling the house, maybe I would hold off on it because you don’t need that money anyway. So right away, for sure. Yeah. Yeah. I would, you have a lot of liquidity and you don’t that you’re not going to be able to allocate. I don’t know. So for folks like yourself, I would look into doing infinite banking.

Yeah. Looking forward to that part of the we’ll get there. I think your net worth isn’t. It’s there, but the fact that you have a hundred grand or more ready to go, but you’re not going to be able to allocate it right away. I don’t see you allocating more. 50 grand this year.

I don’t, you’re not going to buy more than two houses. Okay. I think we can both agree to that. 2020. I don’t really see you allocating more than 150. Okay. See what I’m saying? So if we plan 2019 and 2020, that you’re going to go on with a quarter million dollars, you’re going to have some excess. What I’m recommending is taking a look at that excess and putting a fraction of that into life insurance where this stuff, where you have to put it in one out of six years. You have to commit, right? So I’m not a life insurance originator. You’re like, but I know the strategy. Yeah. Listen to that podcast you had. I think there was a podcast on that. Listen to you. Not too. I think he, maybe he didn’t do it, but yeah, this is a bit, if I just want to communicate like the strategy, they’re like, you’re not going to be using this liquidity right away.

You’re not even going to tap it in 2020. So you got to do something with it. AHP is an option, but the nice thing about the light, the infinite banking is super awesome in the once you have it set up three to six years in the future, but it really sucks cause there’s, it’s really fee heavy in the beginning. If you put in a hundred grand, you might have to pay 30 grand in fees. I see, but for like lower net worth guys who have to look under their couch for coins to pick up that first rental at $25,000 down payment, that obviously doesn’t make any sense for them, but you’re inefficient here.

And so you might buy players that take the inefficiencies and the extra five grand, actually 20 grand or whatever, into licensed. Pronounced to build it up. I see, don’t go bonkers with it. But, it is, I always say, start with a smaller one and you understand how it works. And yeah, because in theory is always different than in practical use and seeing the statements coming in oh, I get this now. And I can tell now I can take a loan for myself. Oh, this is why they call it infinite banking. I get it. Finally get it like a year later. Yeah. Okay. All right. But yeah, I think that’s from a high level, that’s kind of the one, two year strategy right there. Okay. So now I’m just gonna work on getting two, two houses this year.

That’s the immediate goal, but that’s your kind of your, one to your. Okay, fair enough. But yeah. Any other questions you had off the top of your head or? The questions I have pointed on. Interesting. On the podcast, those are one-on-one coaching stuff. Yeah. It’s more, I think, after this more granular, but you have, there’s a path there’s definitely a path for, I think after the two years, I see you getting maybe like three, four houses and then also maybe the middle of 2020.

Maybe play around with a deal, to a syndication and just seeing how that is. And then now you can like, be like, whoa, I like this a lot better. I’m pretty sure you’re gonna think this indication is better. It’s just better than direct operating. I don’t know the returns a little less, but it’s just not worth the time for an exchange.

Okay. So you’ll just go into more and more deals. I would say probably like three, four years from now. Because you’re especially saving 50 grand a year. I’m sure that’s going to go up. You’re like, you’re going to get into this rhythm of going into a deal every, maybe two or three deals a year and obviously that’s going to take a while, to build up like a war chest of a dozen two dozen deals, a $50,000 position in each deal. That’s, it’s a sustainable model and not all the deals are going to go well, not all of them. But I think on the average, you’re, what’s your goal here?

And I guess we didn’t talk about, you mean, why what’s my goal as far as passive income, or as far as why I’m here trying to learn this stuff, passive income, I guess it would be something around 10 K so that my living expenses are covered basically. So I could live the life I have right now and not have to worry about it going to work.

I can go to work. I probably will, but I don’t want to. Yeah, so if I press the Fed, like the infinity time still on, and I could just fast forward right now with the liquidity you have in hand and the equity you haven’t had, you could probably be, if I just take your assets and times 10%, you could probably be 500.

You could probably be halfway there today. So there’s a little bit of work to do. I took $500,000 of deployable equity. It’s what I figure times 0.1. So you’re halfway there. So it’s just a matter of deploying into another half, an half, a million dollars. And that’s just going to take you, if you keep saving $50,000 a year, that’s going to take another 10 year, but it’s not going to take you that.

Yeah. It’s going to take you like less than half. So I will probably see it in five years. Okay. That’d be great. I’d be completely happy with that. In the next couple of years you, it’s not going to be like, you just quit cold Turkey. It would probably be like a transition of maybe you start working last or spouse stop or the last or whatever. She likes her job. Good for her. We’re all happy for her. Okay we can get you out of your job. Any kind of last parting thoughts or questions? No, I just really just want to say thank you, man. I’ve been listening to podcasts for probably about two years and I’ve been busy cause I have a three-year-old now he’s in school, so I have more time. So I appreciate being able to join the mastermind and doing this call.

Yeah, just ex yeah. Yeah. I would give you props there. Like most people in the, Matt, a mastermind, but the investor club in general, they’re either younger than 30 or older than 40. It’s those, like when you guys have those young kids, I don’t have kids. So I don’t know. I’m just speculating to see how you get these data points. But when you guys have kids there’s you guys just disappear off the face of the earth. You guys don’t do anything other than focus on that, which makes sense. But it is. I think that if you were to take that perspective, you’re doing it the hardest time nobody does what you’re doing now.

That’s where I’ll take that. But the whole thing is if you do the right things, it’s very simple. It’s like swimming. I don’t swim very well. So I look like I’m drowning. I can get from point a to pretty quickly, but I’m going to get tired. But if you look at the most effective swimmers, it doesn’t even look like they’re working. They’re so efficient. So it’s the idea to get you to like that, like a graceful dolphin, but investing it’s nice. Yeah. All right, man. Yeah, if you guys like this shoot me an email. Let me know if we haven’t had a chat book, a call and join HUI pipeline club and check out the mastermind club at simplepassivecashflow.com/journey. I will talk to you guys next t

U.S. Economy: Foundation of Today’s Crisis | Podcast With Richard Duncan Part 1

Hey, simple passive cash listeners today is going to be a foundational podcast for a lot of you folks. We’ve with a repeat guest, Richard Duncan who wrote four books, analyzing the causes and the effects of the economic crisis. Now we’ve had him on the podcast in the back, but I brought Richard back and the way we’re gonna run this today is we’re gonna split this up into a couple of podcasts.

So this first podcast you guys are gonna be hearing is a little bit more evergreen. It’s a lot of his understanding and a lot of the stuff I’ve adopted in my understanding of the economy. And I think it’s gonna be very important for a lot of you guys, maybe replay this podcast again and.

There’s just a very different thought process and like how sophisticated people see different news articles in the media talking about the economy and how things really work today stay tuned and the second half or the next podcast, we’re gonna be talking a little bit more timely, current events.

What I say is learn the foundations that we’re gonna be talking about here today, because whatever happens in the world last time we talked to Richard, it was 2019, and I’m sure we were talking about the Koreans bombing Hawaii at that time or something.

I think that was the black Swan event at the time today in Ukraine, but whatever it is in the future by knowing these fundamental ideas, I think it gives you a better way to take everything in and not just be paralyzed and take into the fear mongering of the news media.

Thanks for jumping on Richard. I appreciate it. Lane, thanks for having me back. It’s a pleasure to be here. Yeah. So for people who are not familiar with Richard he runs a paid newsletter called market watch, which I subscribe to along with a lot of the other founding office members in our community.

And, he’ll come up with a, it is about a video a week, or no, every yeah, every month, I think you come up with a new one and a lot of it’s very timely, but a lot of it is more foundational. So we’re gonna be just, hitting the tip of the iceberg today. Let’s get started Richard.

For a lot of the investors, they’re new to how the economy works, how the fed works. Where should we start out first. The most important thing I think for everyone to begin with to understand is that the economy no longer works the way it did in the past.

The big break came when the United States stopped backing dollars with gold. That happened between 1968 and 1971. And afterwards our economic system evolved in a very different way. So the economic theory that everyone is still taught in university, all of the classical economic theory that was developed in the 19th century and before that was all based on the initial foundation stone, the initial premise that gold was money.

And it was all built on that foundation stone gold was money and therefore the economy had to work in a certain way because the gold was money, but after gold stopped being money in 1968, then things started to evolve. And now our economic system works in a very different way than it did before. And so it requires a different kind of economic theory to understand the way it works.

Because after all, I think everyone’s pretty convinced now that the old theory just can’t explain the way things work in the modern world. That’s why there’s been so much confusion about what’s going on in the economy for the last several decades. So let me explain in a little bit more detail. Up until 1968 the US central bank was required to own gold.

To issue to back up all the dollars it issued. That’s the way it had been since the Fed was created in 1913, but by 1968, the Fed didn’t have enough gold left to allow it to issue any more dollars. So this was a huge problem because if the money supply couldn’t grow, the economy would have a crisis.

So Congress changed the law and they removed that requirement for the Fed to hold any gold backing for the dollar whatsoever. That happened in 1968. And then just a few years later, Richard Nixon destroyed the Brett and woods system because that was based on allowing other countries to convert their dollars into US gold.

But by 1971, the US just didn’t have enough gold left to allow other countries to convert all of their dollars into US gold. We would’ve completely had no gold left whatsoever had that occurred. So Nixon renewed that promise for the US to allow other countries to convert his dollars into gold.

And so afterwards there was no longer a link in Melink whatsoever between dollars or money and gold. And afterwards the economic system started to evolve in ways that no one had anticipated or planned on. It just evolved naturally once these gold golden feathers were removed, things started to change most obviously.

The one thing that changed was the Fed was suddenly free to create as much money as it wanted, as long as it didn’t create high rates of inflation. So the next thing that changed was because the fed was free to create a lot of money. This enabled the US government to run larger budget deficits than it could be before without pushing up interest rates.

In the olden days, since there was only a limited amount of money, if the government had very large budget deficits, then it would’ve had to borrow a lot of money. And there was only a fixed amount of money. So the government borrowing would push up interest rates and that would, they say, crowd out the private sector because the higher interest rates made a lot of investments unprofitable, and that was bad for the economy.

But once the Fed was freed to create a bunch of money, as it pleased, it enabled the government to have larger budget deficits because the Fed created money and bought a lot of this government debt and financed the government budget deficits at low interest rates. So more that allowed more fiscal stimulus and that allowed the government to direct the economy more by having larger budget deficits and spending more.

Now the next, very important thing that changed after dollars ceased to be backed by. Was the trade between countries no longer balanced? It seems odd to think that before 1971 trade between countries was balanced, we had such enormous US governments and such enormous US trade deficits. Now, for instance, this year, the US trade deficit is going to be something like 1 trillion.

And we’ve all grown up in this world over the last three or four decades where the US has run these extraordinarily large trade deficits. But before 1971, that just didn’t happen. Trade was in balance. And the reason it was in balance was because, for example, if the US had a big trade deficit, let’s say with China, as it does today, it would’ve had to send its gold over to China to pay for the trade deficit.

And so US gold, which was money. The money supply would’ve contracted, and that would’ve caused a very severe recession in the United States. So unemployment would’ve gone up and there would’ve been deflation. And pretty soon, the Americans wouldn’t have enough gold left to allow it to continue buying things from China or any other country.

So trade had to come back into balance. There was an automatic adjustment mechanism under the bread and wood system. And before that, under the gold standard that made sure that trade between countries had to balance, because if it didn’t balance, you had to pay for your deficit with gold and gold was money.

You’d run out of money. And so you’d stop having a trade deficit was very simple, but once gold was no longer money, it didn’t take the United States very long to discover that it could start running very large trade deficits with other countries and it no longer had to pay with gold. It could just pay with paper dollars or treasury bonds denominated in paper dollars.

And there was no limit as to how many of these the US government could create. So starting in the early 1980s, the US started having a very big trade deficit for the first time ever. And by the middle of the 1980s, it was equal to 3.5% of GDP. That was just something entirely unprecedented, unimaginable.

But that was just the beginning in 1990, around 1990, China entered the global economy. And so the US started having larger and larger trade deficits with China. And by 2006, the US trade deficit was 800 billion in that one year alone. That was 6% of US GDP. Now, of course, this was fantastic for global economic growth.

Because with the US having an $800 billion trade deficit in that one year, that meant the rest of the world could have an $800 billion trade surplus. In other words, it could, the rest of the world could produce $800 billion worth of goods, more than it would’ve otherwise been able to do and sell it all to the United States.

And so this was a thing that, you could say, was globalization as the US trade deficit exploded between 1980 in 2006. This globalization, this huge US trade deficit created a global economic boom that allowed one country after another, around the world to grow through export led growth.

This had really started a bit earlier after world war II with Japan and being able to industrialize by selling a lot of goods to the United States and then Korea and then Taiwan. Then later Thailand and Indonesia, Malaysia, and more recently Vietnam and China. So in particular, all of Asia has been able to industrialize largely because it’s been able to make manufactured goods and sell them to the United States.

So this was great for the developing countries in Asia. It, in fact, pooled hundreds of millions of people around the world out of poverty. But from the US perspective, why this was so important is because when the US started buying more and more goods from low wage countries like Thailand and Indonesia and later China and Vietnam.

This by buying goods from low wage countries, this pushed down the cost of manufactured goods in the United States. It was disinflationary. It drove down the inflation rate and it also drove down wages in the US or held wages down. And so this is the reason that the inflation rate came down so sharply from the early 1980s up until very recently, globalization was extremely deflationary and it kept the inflation rate very low and that allowed interest rates in the US to go to very low levels.

So for example, because the inflation was so low, that meant that the interest rates could be very low. Between the year 2000 and the time when COVID started roughly a 20 year period, the average rate of inflation in the United States was 1.7% in that 20 year period. So that was below the Fed’s 2% inflation target for two decades.

So the Fed’s biggest worry was preventing deflation during those decades, rather than worrying about inflation. So the reason this is so important is because back say in the 1960s and 1970s before, while trade was still in balance, if the us government ran very large budget deficits and over stimulated the economy, and if the fed created a lot of money to help finance those trade deficits, then that always led the very high rates of inflation.

And the reason that led to very high rates of inflation is because all of that government spending and stimulus and money creation, would’ve created such a strong economic growth in the United States that everyone would have a job. And also all of the factories would be working at full industrial capacity.

The car factories would be working flat out. The steel factories would be manufacturing all the steel that it could possibly manufacture. And so we hit domestic bottlenecks, and these domestic bottlenecks resulted in prices moving up, both wages and the cost of manufactured goods. And this led to a wage push inflation spiral that we experienced throughout the 1970s.

So then everything changed though in the 1980s, because we started running these very big trade deficits with the rest of the world and they were very deflationary. So the deflationary forces from globalization completely offset all of the inflationary forces that were being caused by the very large government budget deficits and all of the paper money that was being created by the fed.

And we still ended up in a situation where. The inflation rate was lower than the fed wanted. And interest rates were very low and the very low interest rates, then there were two results from low interest rates. One credit expanded very rapidly, and the credit growth started to drive economic growth.

And also the low interest rates meant that asset prices inflated when interest rates moved down, asset prices like property and also stocks and all the asset classes tend to move up. So our economic system started, it evolved over these past many decades after dollars ceased to be backed by gold. And we moved into an economic system where credit growth became the most important driver of economic growth.

This was something quite so Richard, let me, before we move to creditism, yeah, so check my understanding here of Globalization like globalization is like a disruptor in a way. The way I see it, to use it in a modern day analogy, it’s like the apple M one ship.

It’s like a disruptor technology. It runs cooler. It’s a lot quicker. This apple, silicone, I don’t know all the things, but like for the time being it’s a total game changer and that’s what globalization was. It was the ability to get cheaper labor elsewhere. And that helped both sides of the equation, which is why India and China the, they came up in terms of network or worth, and America was able to outsource a lot of these jobs.

But in a way, is it like the apple, one ship getting old, five years, 10 years in the future? Is that kind of what’s going on with globalization? It’s been around for a while. You’re right. So globalization really produced a paradigm shift. And I’ve written about this in my new book, which is called the money revolution.

So what I’ve been describing so far since we’ve been talking is this money revolution that has occurred since dollars used to be backed by gold. The catalyst for the revolution was when the US stopped backing dollars with gold. And now what we’re experiencing is a partial reversal of globalization.

And this has occurred over the last couple of years first because COVID resulted in global supply chain bottlenecks. And more recently Russia’s invasion of Ukraine has worsened the global supply chain bottleneck. And this has caused inflation to spike. So for all of this time, from the early 1980s, inflation moved lower and lower until COVID hit.

And then once COVID hit well at first prices actually fell for a while when everyone was locked down. But soon after that, because of the government stimulus and the supply chain bottlenecks. Now we’re experiencing very high rates of inflation and this is a, so this has been a double blow to globalization that has represented a partial reversal of this paradigm shift that we’ve lived through as a result of globalization and the higher inflation rate poses, a very dire threat to not only economic growth, but wealth as we’ve already seen.

A great deal of wealth has been destroyed. This year stock prices have fallen and cryptos have crumbled and other risky asset prices have crashed. That’s because the reversal of globalization has driven up the inflation rate and that’s forced the Fed to tighten monetary policy very aggressively or begin to tighten it policy very aggressively with much more tightening to come.

Yeah, so that it’s not so much, globalization is getting old. It’s just that globalization has dealt various severe blows and it’s reeling. It is on its back feet. And it’s not certain how long we’re going to suffer this reversal to globalization. We’d like to think that COVID is going to come to an end sometime soon, but we can’t be certain about that.

In fact, the headlines just today are that, COVID, once again, is spreading around China. China has a zero COVID policy. So they’re shutting down their factories again and imposing new lockdowns. And so this winter, we may have an even worse variant of COVID than we’ve had thus far.

We just don’t know how long COVID is going to last and how long it’s going to continue disrupting its supply chains and how long it’s going to continue to hammer globalization. And likewise, we don’t know how long the war in Ukraine is going to go on. Hopefully it will end tomorrow. But on the other hand, in a worst case scenario, it could spread to other countries in Europe or even become a world war.

So we just don’t know how this is going to play out. And that’s what makes it so frightening today for investors and for economists and analysts trying to forecast what’s going to happen with stock prices and other asset prices. And the outlook for the economy is very uncertain. Yeah. Those two headwinds, you just mentioned one would assume that it would go away in the next decade, let’s just to have there’s some point where it, the impact ends, but globalization, to me, I feel still feel like there’s that’s still gonna keep ticking for a lot, much longer than that. Maybe even several more decades, like how, we said at one time the United States has no more oil fossil fuel, but apparently there’s a boatload of it, right?

That’s right. If COVID goes away, I believe it will. Not that I’m qualified to discuss that, but I hope that war will end sometime soon and not become World War II. Those, it probably will. COVID probably will go away. The war probably will end and things probably will go back the way they were in 2019.

For example, the last time we spoke. And if that occurs, then we’ll be back in this world where globalization is exerting very strong, downward pressure on us prices. And we’ll, it probably won’t take very long to get back to the point where inflation in the US is once again, below the Fed’s 2% inflation target.

And if we move back in that position, that is ideal because it allows the government to manage the economy pretty effectively through large budget deficits when necessary and through quantitative easing with the Fed, creating money and buying government bonds to help finance the government spending at low interest rates.

And of course the low interest rate, environment’s very positive for asset prices. So hopefully we will return there before too many more years have passed. Let’s back up cuz I, some people, so we don’t leave anybody behind here. Some people slow down to absorb a lot of this, which is makes a lot of sense to me as you go over this and this is what a lot, a lot of this content is actually taught through, a large module in Richard’s market watch content on his website, but maybe probably go to creditism and quantitative, easing, quantitative, I think people hear about it, but maybe not all together.

They hear it spoken about in the news here or there, Okay. So again, once dollars cease to be backed by gold, our economic system evolved and it evolved into a system that requires credit growth. Our economic system, our economy became dependent on credit growth. For example, going back to 1952, every time total credit in the US grew by less than 2% adjusted for inflation.

The US went into recession and the recession didn’t end until there was another very big surge of credit expansion. So that tells us that the US economy requires at least 2% credit growth adjusted for inflation to stay out of recession. That happened nine times between 1952 and 2009. And every time that credit grew by less than 2%, there was a recession.

Now let me add this total credit has accelerated so radically during my lifetime, what I mean by total credit? Total credit is the same thing as total debt. Because one person’s debt is another person’s asset. A credit that they’ve extended is debt to someone else. So you can look at this as all the debt in the country, not just the government debt, but the household’s debt, the corporation’s debt, the financial sector’s debt, all the debt in the country.

First went through 1 trillion in 1964, by 2007, just on the Eve of the financial crisis. It has expanded to more than 50 trillion. So that was a 50 fold expansion of credit in just 43 years. And now total credit is 90 trillion. So 90 trillion of credit expansion in just 52 years and credit growth became the main driver of economic growth.

As I’ve said, anytime credit grew by less than 2%, the US went into recession. Then, the crisis of 2008 occurred because the private sector had taken on so much debt. The households in particular had taken on so much debt that they couldn’t repay it. They couldn’t continue paying interest on their mortgages.

And so they started defaulting and the private sector started defaulting and the banks started to fail, but the government intervened very aggressively with multi-trillion dollar budget deficits, and the Fed helped finance those budget deficits with money creation. So between 2008 and 2014, the US government dead increased by 7 trillion.

And the Fed created three and a half trillion dollars through quantitative easing. To finance that government debt at low interest rates and the combination of government fiscal stimulus and money creation by the Fed prevented a new, great depression. It reflected the global bubble that started to pop in 2008 and it carried on, it carried us on up until 2020 when COVID started.

So I described this news, the way the economy works now is driven by credit growth. So rather than calling this capitalism. I call it creditism. Capitalism was an economic system that was driven this way. Businessmen would invest. Some of them would make a profit. They would save their profits. Or in other words, accumulate capital, hence capitalism and repeat.

So it was driven by investment and saving and then more investment and more in saving. And that’s what drove economic growth under capitalism, but in recent decades, that’s not the way our economic system works at all anymore. The growth driver for our economic system for decades now has been credit growth and consumption and more credit growth and more consumption.

So our economy has become dependent on credit growth. And as long as credit keeps expanding, everything’s fine. But when credit slows down and grows by less than 2% adjusted for inflation, we have a recession. And if credit starts to contract, as it almost did in 2008, then we would go into a great depression.

The government understands this and it now manages the economy as best it can to make sure that credit keeps expanding one way or the other. So after 2008, the private sector really couldn’t take on a great deal of additional credit. So the government had to drive the economy by borrowing and spending, and even with the government borrowing and spending on a multi trillion dollar scale.

For the first four years after 2008, that still wasn’t enough to make credit grow a lot more. It wasn’t enough to get credit growing by 3%. In other words, adjusted for inflation. It was even with all the government stimulus and the government debt credit growth was still weak. It was just barely above the 2% recession threshold as I call it.

So the Fed stepped in and through very low interest rates and round after round of quantitative easing, the Fed drove up asset prices and this created a wealth effect. The wealth increased and that allowed the Americans to consume more. And this, so this wealth effect engineered by the Fed supplemented the weak credit growth and allowed the economy to keep expanding.

So from between 2009, the end of last year, total wealth in the United States expanded by 150%. Total wealth grew by 90 trillion in those 13 years from 60 trillion in 2009 to 150 trillion at the end of last year, 150% increase in household sector wealth in the us. And of course the creation of 90 trillion of wealth was very helpful in making the economy continue to grow.

It allowed people to spend more money, more consumption, and consumption’s 70% of GDPs. So that helped fuel the US economy and that made the economy grow. But the problem was that the wealth, the asset prices were moving up much more rapidly than income. So the asset prices became extremely inflated.

There’s a very good measure, a good index that I look at called. I call it the wealth to income ratio. And when the wealth to income ratio goes very high, that tells you that asset prices are too expensive and they’re likely to correct. So what this wealth income ratio actually is the household sector net worth, which I was just talking about.

Household sector, net worth, hit 150 trillion at the end of last year. This household sector net worth is divided by personal disposable income. So it’s wealth to income. Now, the average for this ratio, going back to 1950, this wealth income ratio has averaged. 550% since 1950. But during the NASDAQ bubble, it hit a record high of 620% because the NASDAQ stocks were so expensive and that bubble popped, and it went back to its average of 550%.

Then during the property bubble, the wealth income ratio shot up to a new record, high of six hundred and six hundred 70%. And then the property bubble popped in 2008. And this wealth income ratio went back to its average 550%. But by the end of last year, because of this extraordinary frenzy, in all of the asset markets, the wealth income ratio went up to 820%.

That was 23% and above its previous all time high at the peak of the property bubble. This was telling us that asset prices were extremely stretched. And very vulnerable to anything that could go wrong. And the thing that went wrong is inflation went up and the Fed had to start tightening barriers aggressively.

And so now we’ve had the first half of this year has been the worst year for stocks going back to what the 1960s and in the second quarter in particular was particularly harsh. So we’ve seen NASDAQ down more than 30%. The S and P’s have been down more than 20%, two thirds of all the value of crypto has been destroyed and other expensive asset prices are crashing as well.

But even after this, the wealth to income ratio based on my calculations is still 730%. So it’s still. 10% above its previous, all time peak in, at the peak of the property bubble. So this is telling us that asset prices are still very expensive and potentially have a lot more downside to go. For instance, if the wealth income ratio were to fall back to its 50 year average of 550%, a total of 50 trillion of wealth would have to be destroyed between the end of last year.

And by the time we hit the average at the end of last year, total wealth in the US was $150 trillion. It’s now down because the sell off in the stock market is now probably about 135 trillion. But to return to its average, it would have to fall to 100 and $100 trillion. And that suggests that up to another $35 trillion of wealth could be destroyed.

Before we return to the average. Now it’s not certain that we are going to return to the average, but much of that is going to depend on how high the Fed increases interest rates and how much money the Fed destroys through quantitative tightening, which just started last month. Yeah. I think that’s a kind of a fascinating ratio right there.

How, but I’m thinking that there’s a wealth gap, right? Part of that is taking in the average consumer out there, which is getting worse and worse than the top 1% or 0.1%. How does that factor in wouldn’t there be even wouldn’t their percentage getting less and less over time if that’s the case, that’s the overall trend?

You’re right. The income inequality has become very much worse and over the last few years, but over the last couple of decades as well, if a lot of wealth is destroyed, a lot of that wealth will be wealth belonging to people who have more than a billion dollars, but at the same time, if we see, so if that’s the case, then you know, it might not be so terrible because someone who has $15 billion, it’s probably not going to spend a lot less money than when he had 20 billion.

He’s still going to keep spending a lot of money, but whereas someone who’s at the bottom of the income distribution spectrum, if they lose a little wealth, they would have to probably spend much less money. But now of course, a lot of Americans own stocks and a lot of Americans own crypto as well recently.

And with stock prices down so far already, these people are probably going to feel less wealthy. They’re probably going to cut back on their spending. Of course, all of the government stimulus over the last few years has helped boost savings and has enabled the American public broadly to spend more money.

But of course, those stimulus programs are over. Now. The first one was in March, 2020, the second one was December, 2020. And the third one was in March, 2021. That was 15 months ago, so that there aren’t going to be any more big stimulus packages. So that source of consumer spending is going to dry it very quickly as well, that, combined with the big losses in their 401k plans.

And once they realize how much money they’ve lost in the stock market this year, that’s likely to deter them from spending as much. So it’s going to be a real drag on the economy and soon property prices are also likely to begin to fall. As interest rates keep moving higher. Of course the property markets enjoyed a wonderful run.

I think it’s up to something like a third. Property prices on average home prices are up something like a third over the last two years, and they’re still going higher on a year on year basis, but that’s likely to reverse before long. The Fed has just now started tightening interest rates and they’re going to keep tightening rates.

They increased the federal funds rate by 75 basis points last month. And they’re expected to increase another 75 basis points at the end of this month. And they’re likely to keep increasing the federal funds rate every time they meet through the middle of next year. So it’s not the federal funds rate now; it’s roughly in a range between 1.5% and 1.75%.

But by the middle of next year, it could move up to four and a half percent. And if it does, then the 10 year government bond yield is going to be at least four and a half percent and mortgage rates are going to be significantly higher than that. And so property prices are likely to begin falling and a lot.

And of course, most Americans are nearly most of all the Americans own their own homes or the majority at least. And so if they start feeling that their home prices are following, this is also going to curb their consumption, right? And with the fed increasing, the fed inflation rate now has shot up to 8.6%.

These are CPI headline numbers. The core numbers are lower, but they’re still well above the Fed’s 2% inflation target. So the Fed’s going to have to keep hiking the federal funds rate and pushing interest rates higher. The Fed’s mandate is stable prices and maximum employment. While employment’s extremely low, 3.6%, the Fed’s going to have to concentrate on bringing down the inflation rate.

Now, inflation is driven by supply and demand. If there’s too much demand and too little supply, then you get rising in prices. And the fed can’t do anything on the supply side, the fed can’t go out and drill more oil Wells or plant more wheat. They only can operate on the demand side. And so, what that means is they have to make demand go lower.

If they’re going to bring the inflation rate down. And the only way they can bring the demand side lower is by increasing interest rates so far that they throw millions of Americans out of work, and also destroy a lot of wealth by making the stock market and the property market fall. And by that makes demand lower by making demand lower, that makes inflation lower and so that’s what they’re intending to do now. They’re intending to drive up the unemployment rate, they’re intending to destroy wealth so that the inflation rate comes back down.

July 2022 Real Estate Braddahs Ep. 53

Hey folks, this is the 53rd episode of the real estate brothers. Welcome folks. In this episode, we’re gonna be talking all about rising interest rates, J Powell and rumors of the fed. And Dean’s gonna start us off with some June statistics, but before we do that, why don’t you guys take some time and take some questions and comments and we’ll, I’ll try and formulate it in our head.

We’ll try, incorporate it into this month’s episode. Okay, so that is that me? That’s you. Okay. Welcome everybody. Thank you for tuning in as always. What is this number? 53 episode number. That’s pretty cool. I think it shows our dedication to our craft. We’re not doing anything else other than doing this freaking thing every month. We should be in person soon.

Is that right? So as you guys know, I’m a real estate investor and realtor in Hawaii can catch me on my YouTube website real estate of Hawaii, or my website, real estate of Hawaii dot. But yeah. Before we jumped into the statistics, I wanted to share a couple things, summer activities here in Hawaii.

So one event that I tried, our venue was beyond Monet. That’s over in the convention center. I, the reason why I posted, I wanna talk about this one is that I wasn’t very cool. I guess you could say, but I wasn’t impressed very much and maybe I’m not an impressionist appreciator or an art appreciator, but it just was, the lack of, what I was able to see there, basically there was like two large rooms.

One room had a lot of. Words that you could read about Monique’s history, which that part was interesting, but keep in mind, I brought my 10 and my eight year old child and they went, we went on a playdate. So that was one room that after you read all the history, then you step into another room that had, it was like a big, I know it is just an empty hall that had four sides of Screens and the projectors just shot on all four sides.

Like just moving art, which is interesting too, but that was pretty much the end of it. And I think we paid, along the lines of maybe $30. So it went by really quickly. So just underneath that, I have this search for Snoopy the peanuts adventure at the experience. We didn’t do this, but the funny thing is after the beyond, Monnet.

event. We went over to AWA shopping center and to have the kids play on this playground right next to the target. And we saw this search for Snoopy, a popup adventure. So I, we didn’t go to, we didn’t have time, but I then went online, came to find out it’s the, it’s pretty much the same price as the BI money event.

And again, I haven’t gone through it yet, but it touted like eight different things. Areas to go and do, tour and adventure. So it depends like I’m sure if you’re a Mon fan or appreciated the beyond money must would probably be awesome. But, I didn’t find it very. Good bang for your buck.

And the one interesting thing too, was that someone was working, there was a basketball tournament down below at the convention center. So I was talking to the lady working that event. And she has mentioned to me that she was gonna go to beyond Mon and said, oh, And I asked her, there was a beyond van go event that happened probably six months ago.

So I had asked her, oh, what she thought about that one? She said she hadn’t been to that one. She missed it. But the interesting comment she made was that the beyond van go event had a lot, a really good turnout. And from my understanding, it was very similar with the two different areas.

And she said, surprisingly, she finds that this beyond Monet venue, isn’t getting as nearly as much attraction or pool as the beyond van goal came. So that made me think that people like that. Paid the money for the Vango event. Weren’t impressed enough to come back to the beyond money when they found out it was a very similar concept instead. Anyway, did you go to the one in Japan where there’s like

the immersive experience near you? Yes. So that one there’s two of those in Tokyo and we did go to that and oh yeah, maybe I’m comparing it to that, but. When blue this one’s out of water, because this one, I’m just looking at a picture, but it looks like they just like. Fired up four or four projectors and they just changed the USB file.

It’s not, I, there are transitions a little bit. It’s a little bit more fancy than that to your point. But yeah, in a nutshell versus the one in Japan, which is, comparing apples in oranges, but the technology that they had in the one in is, the kids, they would get a picture.

They would. Draw a sea creature, and then they would scan that sea creature in the computer, and then that would pop up and be animated. And. Going all over the walls in the virtual ocean and it would be moving. And that’s just one right there. There’s and maybe we were expecting that, but anyway, we are typical Hawaii, man.

If anybody can help me find a CPA that knows about passive losses and land conservation essence, please help me because apparently we are 20 years behind everybody on the mainland. And in terms of 3d, immersive art, we. A hundred years behind Japan. Anyway, getting off topic, let’s jump into the statistics for June.

And I’ve been tracking this as well as some other statistics because everyone is talking about the doom and glue and how there’s the correction and interest rates are making everything. Tank. And that may be the case on the stock market side, but glad to announce that it’s not quite happening in Hawaii. We are seeing a little bit of, I dunno, if you wanna call it softness, but as you can see, it’s not really evident in some of these numbers I’ll point out to you where it might be, but starting off with the single family meeting, single family home prices, we’re actually at 1 million we’re actually up 12% from the same time last year.

On the townhouse condo side, we actually. Broken all time, new record at five 30, 4,000. And that’s up 16% from last year where we do see maybe a potential. I dunno if you wanna call it softening, but it is on the Kohl sales, 357 for single family. That’s a 21% decrease from last year and 626 Kohl sales for townhouse condos.

That’s a 14% decrease. Last year, if you wanna say, that’s, if that’s a sign, the market, we’re still at 10 and 11% market, which is still a strong seller’s market by definition. So what I would like to do is like how we always do is dig a little bit further to see how things are going.

So closed sales. We see again, we’re just looking at the trend lines that, over the last. In 10 years, this is the closed sale trend. And if you look at it still looks relatively healthy, it’s not like it’s like a big drop, for new listings. This is where I think on the mainland.

Certain parts of the mainland they’re saying is softening up because sales are going down, listings are coming up. And then, inventory overall is on the rise, which is causing the prices then to soften. But as you can see here, new listings, we have, we, it’s not really going up. It’s actually going down.

And so what that does. Month supply of inventory. It’s not bumping that up as much as it is in certain parts of the United States. So if we look at, for June, we still have a single family, 1.6 months of inventory and condos, one not much different at 1.7, if you look at this historical chart, we were still really busy all time low still.

Until the inventory starts bumping up, I think that’s. We will actually get to see more softening of the prices I think. And, one thing different we have is our new construction rates. Aren’t nearly as high as they are at the mainland, being on the island as we are. So looking at days on market too, as a lagging indicator for a buyers or sellers market.

And we have, as you can see. As you mentioned earlier, it’s well under two weeks, so we’re still by definition in a seller’s market. And again, all of these statistics are lagging indicators, but these are six days old, right? As of June, interest rates again we talked about in the past.

I pulled this number yesterday, but the 30 year fixed is at 5.65. And I know I hear a lot of people freaking out and right, because everyone’s been spoiled for the last 10, 12 years. And what it does is yeah. When you, everyone is used to that 3% interest rate, it’s going. Almost double and now your buying power goes down.

So everyone has to adjust to that. Yeah. Okay. So now going onto some interesting news on the west side of wahoo, this is regarding the Makaha valley area. Once in a while, I get these calls . A lot of people like new construction and they’re looking for new construction popping up.

We always talk about Kaka ACO. We talk about Co Ridge having a whole ley, but there’s one small subdivision out in Makaha valley by cottage, by Stanford, Cara cottages at Mount Olu. It’s a gated community. The single family homes up to about 1.2 million and it is just out there in the middle of that valley and just stands out compared to everything else.

And part of the reason why is because we had this, a Canadian company that had bought the land in Makaha valley many years ago. And they were supposed to develop residential vacation homes, vacation rentals and golf courses. A few golf courses, I think two golf courses popped up over there.

Only one has survived, but besides that, there’s not much out there. In fact, one of the golf courses was supposed to be a tiger woods golf course. And so without that development coming through fruition that cottages of mono oil just stood out there. Oddly placed, but that developer actually went bankrupt in 2021, the one in Canada.

And so they, the bankruptcy courts have sold the property to K group, which is a Korean company. And hopefully they’re gonna start development in terms of getting that Makaha valley, developed in, having. Some neighbors and something to match the development of the cottages at MLU.

So that’s it depends how you look at some, some people think that’s great news. Other people are like, keep the, keep Hawaii, but is that a safe place out there? Is it. I just ask the question, everybody’s thinking. Yeah, no, and that’s a great question. And as a realtor, by, by definition, they, we have to watch out for what we say because of fair housing laws.

So when oh, selling properties, that kind of thing, but no, to your point, you go down the street. And you head towards the ocean and there’s a homeless camp off to the right, right on the beach. That’s not looking too good. And overall, you think of the, once you get outta Makaha valley, you look at the.

The condition in the neighborhood, the houses are really old. And so there is something to say it was gated, right? This thing, this, the cottage at mano is gated. Yeah. And there’s a guard. Like I said, it does, it is unique in terms of once you get out of the valley how the rest of the inventory and those new neighborhoods.

This is good for the mainland guys who don’t know anything about the island. And then they just, they don’t care being on the west side. Funny that you bring that up because that’s who’s the ones that are spotting this one and asking me about it. So yeah, that’s exactly the ones. And then, so then there’s a little bit of education too, and saying, okay come down and let’s go drive through the neighborhood. Let’s take a drive out. and let me know what you think. And so it is to your point that I am getting those inquiries about cottages. That’s why, when I see these articles like, oh, good to talk about because it’s all part of educating our friends, our clients, about our neighborhoods, where are the gated communities?

You get this one there’s. There’s actually a if you could see this picture out. Oh, lower Ridge. Oh, just in general. Yeah. There’s not many gay communities. Yeah. There, oh, there’s a townhouse in Milani Maka. There’s condo complexes that are easier to gate, right?

Yeah. But no houses. Yeah. You know what I mean? Yeah. Oh, there, there are ones I. Shoot. I think in Windward side, there are too. And in the Kahala side, there are a few, I think they’re small though. Yeah. But yeah. That’s why I like to talk about these kind of, articles too. Yeah. As always, I like to talk about the scam the month.

So now we’re talking about celebrity cryptocurrency scams and. Basically what these scammers are doing is they’re building the scam initially. Then the criminals will boost the scam with fake endorsements. So they will get, I guess they’ll impersonate public figures who previously promoted cryptocurrency to make the endorsements seem legitimate.

And then the endorsements are meant to influence you to invest in the scam. And if you fall further you’ll not see any return on your investment, obviously. So keep being aware of those. Always do you know, never trust a get rich quick scheme, if it sounds too good to be true, it probably is.

They’re the crypto currency scams are usually caught, and shut down quickly, but you never know. And remember that celebrities do get paid to endorse the. Cryptocurrency. You do your research and your due diligence in mighty people, although we are social creatures and we just follow, like lemmings one person that’s popular, right.

Happens since high. So that’s basically what this is. Yeah. So in this scenario, that celebrity isn’t truly promoting this scam, it’s just try to mimic that. Yeah. So the way this works is there’s like these discord channels. And then they’re usually put on by some kind of influencer, like a YouTuber or somebody like a podcaster that doesn’t know what they’re talking about.

But sometimes the influencer is like some actual tech founder that actually went full cycle with a company that’s where you gotta do due diligence, but most times it’s think, what’s that Jake Paul dude, or I don’t know who these guys are, that the one the brothers, the box. The pro boxer.

I don’t know. He, I don’t know. He’s got beach chairs like that, but he’s, there’s a lot of these like influencers, right? And so they get paid, not they’re dumb. They, I would, if I was the influencer, I would want equity, but they just get paid like a, just a quick sum of cash to shout out.

Just like all the Instagram influences out there. If you guys go to social blade.com, you can. Find all the local influencers and just pay people in certain categories where you want. It’s all paid for. It’s just a sham these days.

Like social media, waste of time. I dunno. I’ve been grumpy today. Cool, cool. No, that’s a good, very good point in terms of, you get. You very much do research, cuz there’s so many people and you think that it’s legit, they try to legitimize things. Anyway, moving on. So I have a client who is, this has happened a few times actually, where. . But right now I have a client who’s planning to sell their property.

They live 3000 miles away. They haven’t seen their property for quite a few years now it was tenanted. And again so yeah, they’re in the mainland and One thing and sorry they want me to sell their property. So one thing I asked them to consider you don’t need to, is to get what’s called a pre-marketing home inspection.

Typically in the buying process, the buyer is recommended on their own dollar to get a home inspection. And they use that as leverage, possibly to negotiate repairs. And our credits. So in the scenario that we’re in this for my clients, I had given them the option to get a pre-marketing home inspection.

And so one reason why this might be something for sellers to consider is it, it minimizes prices for the buyers as well. For the sellers in that manner, because they haven’t set it for net property for so many years. They don’t know what’s going on. A lot of times the property manager doesn’t let them know what happened.

The best thing they can do is go back to their accounting and see, oh, they had, they got billed for this. Okay. Okay. The toilet was repaired cuz or replaced. Cuz we see that in the bill, sometimes there’s a bill and there’s no detail. So the inspection helps. minimize those kinds of oopsies or like things they didn’t know about you.

And in theory it can reduce the buyer’s reason to cancel from the one inspection. So if providing, then with the buyers, with the information, if you want to at least be able to disclose things that popped up in this pre-marketing home inspection. It gives the buyers in theory, less outs because of, in things that they didn’t know, because they discovered it during their inspection, because we were able to let them know prior to getting into, to contract by right.

The buyer can opt out of the. contract based on for no reason for that matter in terms of if they’re still within that inspection period, but this just in theory mitigates the risk of them canceling on a, for a legitimate reason. It’s also in a pre-marketing home inspection is also a great marketing tool from the standpoint of being able to say to the buyers and the buyer’s agent in.

In good conscience that the seller is being upfront, honest and operating. Good in good fails in good faith without anything to hide. And it totally depends on the sellers because the sellers could take it two ways. They could go on the one side of the spectrum and be fully transparent to the point.

Oh here’s the pre-marketing home inspection report in. Take a look at it and you can see, or you could be on the opposite side of that spectrum and say, you know what, I haven’t set foot on this property. I’m gonna sell it as there are no credits, repairs, anything. So buyers now that you know, that you build in that, to your taking that to consideration in your offer, right?

So that’s theoretically you could be leaving meat on the bone though. So that’s why when you have that two ends of the spectrum, In theory, when you’re being more upfront and open you can hopefully get more for your property and pocket more. So it depends how you look at it again. Sometimes I have clients who are like, no, just as I take it.

I don’t wanna know anything. Just let them know. I don’t know anything. And that’s fine also. And again, situations where the owners haven’t seen their property in a long time is often when I. through that as a consideration for my sellers. So something for sellers to think about.

Yeah. See. So last I wanted to end with an update on the Kakaako neighborhood. So I went by today to take some clients over to the ward village. Area in the IBM building. And so I heard a few presentations. So quick update the Ali condo condominium that’s been completed already, but they still have some available studios that start at 660,000.

And there’s actually resale condos for Ali because it’s been done. I think some people are turning around and trying to sell them. Of course those are probably more. units that are, they were picked already. So the ones that are still sitting are not gonna be as, in good I guess part of the building, also co Ola is another complex similar to Ali, a little bit close, closer to the ocean and those studios start at seven 30.

They also have one bedroom at, in the nine hundreds and the two bedrooms at 1.2. So this one’s not gonna be actually done till I think. The fall quarter Q3 of this year. So those are for sale. A few units left. If you have, if you add to know anything, then P me, I have the pricing and the available units, but maybe for next month I’m gonna talk about the next building, that word villages or Howard Hughes is putting up and that complex is called Kalay.

And I’ll report next month. But lane, we talked about not Uru being on the ocean and having nothing to no views. So Kalia is one of those buildings that’s gonna be built right across from Aliana Boulevard. And it’s gonna have a view of the ocean in theory. They’re not building them similar to Naru where everyone has.

Ocean view, they’re doing it a little bit differently where I believe it’s, you’re either looking ever or diamond head. And then you have not a pick a peek, a Butte blue view, but you don’t get a straight shot view of the ocean so that everyone has some kind of view, but not the most gorgeous view, more information on KA coming soon. Those, when bedrooms start at 1.2. Just to let you focus on the downs, that could be for a while, but I’ll probably have a better, more comprehensive report with pictures and pricings. For next month, what’s the three bedroom, three bath costs. Because all these other ones are under like 1200 square feet.

Yeah. So, I think there’s gonna be like, I think that the highest would be like 5.3 fi in the 5 million. Oh, that’s probably this one, this three it’s at the corner unit three bedroom, three bath, 1457 square feet. So yeah, so Kale’s gonna be 330 units. 165 of those units are gonna be unrestricted, meaning, you can be an investor.

You don’t have to be living here. The remainder you have to be. It has to be owner occupied. Yeah. So what’s. oh, okay. So this Alii is not as good as Lua then. Yeah. Ali’s further towards the mountain. The unit sizes are a little bit smaller, the unit sizes. And then yeah, this interesting thing is Alii.

I have heard from a few buyers who stepped into the unit after cuz you’re buying off blueprints back then. And they’re like, oh my gosh, like this. This is so small. I can’t even believe how the engineers even, or the architectures they should be fired for coming. And man, you knew you should have known it’s gonna be tiny.

And, the thing is there weren’t any models to look at. Yeah. And I did see one of the Ali studios and it wasn’t that it seemed actually really big because of the way they made everything efficient and they had a Murphy bed and, but it reminded me of Murphy bed. You gotta live in the studios.

Yeah. Yes. If you’re, it reminded me of some of the Airbnbs, I stayed in Tokyo. If you are moving from, say Milani Maka from the four bedroom, three bath single family home, 2000 square feet, and you’re trying to. Squeeze yourself into a 350 square foot studio. Yeah. You’re gonna, you’re gonna be in a big bunch of shock.

Yeah. That’s the downgrade living with mom and dad. You get your living room and all the common air between the laundry room and you know that you get smaller quarters. You could, yeah, seriously. So I don’t know. It just depends how you look at it. Cuz the theory is that, you go back to your, so these micro apartment theories in these urban areas is you go up and you go to sleep there, but you’re gonna go down to the amenities that they have as well as the public amenities in terms of the restaurants and the shopping and the parks.

And know the interesting thing about transitioning back to Kalia is they’re gonna have these bungalows, it’s almost giant. I dunno like kitchens and the area. And one of the bongos has a pool where you can rent out. This area fits maybe 50 people and you have to pay a fee, but it’s almost like a miniature version of middle lane town association where you can rent out the big party room for your 300.

party, graduation, that kind of thing. It’ll be interesting, but yeah, Kala’s gonna be right on the, on Boulevard. So that should be an interesting one. I can, I’ll talk about that one and we can do even comparisons with the older inventory that has the video. Yeah. So that’s all I have for my section.

We’ll. If you guys wanna learn more about investing on the mainland, you guys can check out my podcast and we’ll pass it, cash flow, and the website simple pass it, cash flow.com, but let’s get to it here as this is a little chart that I put together where everybody’s complaining about the interest rates going up, but Hey, the interest rates go up, they cool off inflation and that’s just what the fed does.

And that’s, it’s kinda like your parents who told you couldn’t do something you wanted to do. That’s what the Fed is doing to make sure that we don’t go to hyper inflation and some con historical context of how long these times of cranking rates up, what did it go up? 70 per basis points last time.

It will probably go up half percent three quarter percent again next time, but you’re the last time it’s, it’s gone. 1.4 years, one and a half years. She lived 0.2 years from 2005 to 2008. The most recent one, 2017 to 2020, just before the pandemic was 2.6 years. So I would say, people say the interest rates are gonna go back down. I don’t think so, man. I think we’re looking at least another year of interest rates cranking up,

Best and worst places to raise a family. People like these for some strange injuries and, but Honolulu and Pearl city were like number one there. Oh, wow. Yeah.

Sanel is like a real estate guru staying away from Bitcoin. And if you guys are interested, I did a video called Crypto winter, which is upon us. I think it was live. Tomorrow on my YouTube channel, you guys can just Google it. Rich uncle is the YouTube channel. We try to keep things fun and light up there, but I’m not a huge fan of investing for sustainable returns, that type of stuff.

I do think it’s long term, so don’t get me wrong, but I just don’t. I took all my money, all that blocked by and all that type of stuff. Cuz there’s all this did. All the brokerages. I don’t know if that’s the right word to use, but of all the people on the exchanges there’s some turmoil happening on the staking side , but John Burns real estate consulting reports that demand is shifting from owning to renting with prices still pretty high.

There’s a bit of a. Home appreciation nationwide hit 20% in March of 2022. Making the largest jump in three decades. Mortgage payments went up about $600 with the latest increase in rents. If you live in Hawaii, that’s probably four times. Probably like two grand mortgage payments, right? Like most people used to pay three grand now it’s five GS right. Every month. Yep. Yep. Yep. In terms of new, the comparable new loan, right at the new lease, right?

Yeah, exactly. Should have done it yesterday. Yeah. Cause we all say, but I saw a picture the other day of some guy signing a noon loan. And I was like, really now’s the time to do it, but I guess, the rates are gonna go up more than likely in the next year. So I guess better now than later, but it’s a little too late to the party in a way.

Oh, I told you too. And that other slide that I showed, at, five, 6%, we’re still relatively low in the grand scheme of historical interest rates. You. Yeah. So exactly. So we’ve just been spoiled, when it, and it’s just shocking to us emotionally, as well as financially, when you look at how far down our buying part went, compared to when I was at 3% or below 3%, it’s very unnerving and it’s scary. It’s scary. . Yeah, but are you ready? That’s why I like your condos. Like your condos are, so I don’t wanna be offensive again. I always get that disclaimer, like one ha or 600 grand to 1.5 million, that’s all kind of semi middle class household house is like, to me, the people coming from the mainland are not middle class.

They’re all buying much larger or they can afford all charter, larger houses. Or more expensive houses. That’s 600 square feet here in Hawaii, apparently, but, yeah, like I, it’s binary. I think it’s like the low end folks, which is, most people in Hawaii are struggling and it’s the high end that can afford it.

And they are doing pretty well, all things pretty much it’s the elimination of the middle class, right? Yeah. The cation of the haves and the haves nots. Yeah. What do you wanna be? Dean? Do you wanna be, you can’t be middle class. You can’t stay in the middle and you have to go to one side, I wanna be on, I wanna be happy and I want my kids to be happy.

Yeah. Yeah. They’re not gonna be happy unless you pay $30 to see Snoopy and well, and not even bed an eye on it point us to the apartment market, nothing sign of slowing down rents. Road. Here are some apartment markets that are doing pretty well: Miami, New York, Fort LDO, Florida, Tempe, Orlando, San Diego, west Palm Nashville, Seattle, New York. Top smallest increases generally came in the Midwest and Northeast.

All the growth is in the Sunbelt. We keep talking about it again and again, and multi-housing news echoes that the rust belt and. Northeast, more people were leaving California, the rust belt and the Northeast heading to the Sunbelt and the Rocky mountain regions. This article they’re talking about out-of-state rental applications.

So people are moving out of their state. I know people are always moving out of Hawaii and the more affluent people are always moving back. Where are people relocating? Where are the magnets? Texas, Florida, Arizona, Georgia, and Tennessee. And this is what we’re talking about. The nation’s best renter retention rates for conventional apartments are occurring in the class B and the C units because of class B and C folks.

The middle class are not economically mobile and they cannot afford to buy houses, especially today. And this trend will fully continue on. Oh, here’s some places where they’re moving Class C are the apartments that aren’t raising rents as much as the high end, because the high end aren’t there, they have more money to spend, especially these days coming outta the pandemic.

Which is a little perplexing too, because you would think that maybe the people who are on the fringe or the bees move down to the seas, but right. So you just don’t have the ability to pay much more. Seems this one has some pertinent to Hawaii folks. But this is all the way in New York. This is a sort of anti rent control bill that got passed. Just one in a line of many I’m sure there’ll be more rent control, but I always look to you, you’re drawing us out with the paper. Oh my bet. All right. We’re always Looking at states like California and New York, where you are seeing this kind of precedent centering type of laws being passed because Hawaii is very progressive in terms of laws and equality.

In terms of financial equality, changes in my opinion, One time, Hawaii that comes up for discussion. Once in a while at the legislature rent control, it’s very scary. We don’t have rent control here. We do not, but it comes, it comes up every once in a while, every session. I dunno if it’s every session, but it becomes a topic of discussion because of the high cost of living there.

Affordability problem. Did you hear that Hawaii’s minimum wages can get raised, I don’t know, 10 years from now that was that a big thing or I just saw that article. Yeah. It’s see, I don’t even initially right on the fed side I think Obama was going, he was successful.

And I don’t know. I feel that I understand what they’re trying to do, but. I have a feeling it’s gonna backfire from the standpoint of, when we hear big, like on the federal side with that, I feel like now we saw McDonald’s a lot of those kiosks popping up in the cashiers.

Yeah. At the Safeways, we see the self checkout lines, more popping up, even Costco. So I feel like it might have a backward effect. you’re gonna actually displace the human resource. Yeah. I’ve never seen so many parking attendants. The guys who take your ticket.

There’s none of that. On the main night, everything is Automated, you don’t have some random person just staying in that little booth all day, making X dollars an hour. You don’t have any of that. I think El Elon Musk was watching an interview with him and he was saying that, with all of this technology, AI and everything, it’s gonna make a lot of this menial labor.

Positions that were handled in previously by, from, by humans, handled by technology and AI to the point where you know, people that don’t ha these, I, I guess for lack of better unskilled labor type positions are, might go away and who need to have, like a socialistic society where. Some people, the homeless, won’t be homeless, the jobless population will grow because there won’t be any jobs for a certain type of demographic or amount of education.

There, there won’t be any jobs for a big portion of the population. So the governments are gonna have to just pretty much just give them money and because they, there’s no way they’re gonna find a job. Go on Reddit and read the anti work thread. It’s funny. It’s made to be funny, but it is super sad because like people, you have to get into so much student debt to get a halfway decent job to make 50 cheese a year.

It’s ridiculous. And then one of there’s funny things and it’s okay, Make me do this bullshit application for a job that takes me like an hour. And then I have to upload all my job experience every single time. And then you’re not gonna tell me what the stupid pay is. That’s absurd, but that’s just how it is.

I don’t know. It just, yeah, like it, it is getting so separated. This is why I just wanna go to my gated community where when everybody gets so pissed off and everybody just fights in the streets, I will be away. And maybe, I know you’re not allowed to have guns, but maybe I’ll get a cannon or like a lightsaber and protect myself.

But yeah, like it just, yeah, it feels, feel sorry for a lot of folks out there. It’s just the system. Yeah. But yeah, I agree like the, raising the minimum wage is gonna get just passed down to the lower guys somehow. Yeah. Yeah. But let’s just keep focus on keeping the status quo for now.

But yeah, CNBC business, their opinion. It’s time to prepare for a recession. I’m not, I don’t really see this happening too much. We’re already, we’ve already had a negative 1.5% GDP. Last quarter and our recession is officially two quarters of that in a row. But like when the previous quarters passed were like 20% plus gains then you’re due for one of these once in a while.

You’re still net positive. yeah. You’re still net positive on one year moving average, these articles they need to sell, they need to sell doom and gloom. But I do think that the war in Ukraine is going longer, or the lockdowns in China, cuz that’s gonna make even more supply chain shocks. those are just two of them.

What they call the black Swan events that could potentially happen. That probably won’t, that is there’s always black swans events that could happen, but I don’t know. I don’t know. It’s why you buy stuff that makes sense in cash flows, as opposed to gambling on things. And don’t.

Any commentary there, Dean, I just was gonna say with that said, how, what, how are you getting ready for this? Or how are you? I think in a discussion I had with you, you folks, in, in a different setting, it was like, part of me, is getting caught up with all of this, these Domain gloom stories and taking my foot off of the gas in terms of.

My investing because I’m at where I’m at now. I’m still in the acquisition phase. So in theory, all things being the same, I should be pedaling to the metal and buying cash, flowing properties, but seeing this kind of thing in the media, in terms of the recession coming up and it’s maybe I’ll keep that cash for a little while.

And although I’m losing. Up, 8% keeping it in cash. If, and when there’s a big correction, then, I can put, be buying whatever real estate stocks. Yeah. Crypto at a discount and at the bottom waiting for everything to go up. So it’s what are you, how are you taking the, all of these kinds of articles since you’re reading them, just buy stuff that cash flows now.

But that whole thing that you said makes a lot of sense, but in practice it’s impossible. Do you remember 2008, right? That was your big moment. could you have picked the bottom and picked the right point? No, you probably are. So you could even do it in 2011, 12, 13, 14, 50.

Like you, you are not able to pick the bottom, just like again, 20, 20. The bottom fell out. But did you have the coho to go back in and summer of 20, 20 or 2021? No it’s impossible to catch, go in is, which is part of the practicality of that type of strategy. And I don’t claim that I’m that smart or have the clogs that do it either when it drops.

So I’m just gonna dollar cost average, and just, yeah, I was about to say the exact same term. So look what happened in 2020, like the bottom things dropped, right? I don’t have any of that type of stuff. That’s why I do real estate. But if you are already in you and you held onto real estate, you got that tremendous climb up.

There was no way you could have jumped into it. Hit that wave. If you are sitting on the sidelines or on shore, you have to be in the water in there holding onto the asset. Yeah. And by the time it’s all happening. You’re like oh no. Oh no. yeah. If you have enough man, like by all power to you, you can do what you want.

But most of the people saying this do Gloo and they’re gonna hold onto cash. Are. Guys are under half a million million dollars net worth. And to me, you can’t sit there with that. That’s just not enough on my own, for me. Yeah. But if you wanna do something, that’s what life, that’s what the cashier life insurance is.

It’s a way of pun. If that’s a really conservative way you wanna play it. That’s a good point too, in terms of getting like it’s you’re not going to. Kill it with the returns, but you’re, you have something better than sitting in, in cash in the bank, and then you have so many options in terms of, accessing the cash for, yeah.

For what investments in, and not applying that. Yeah. I’ll say on a recorded line, I will guarantee that people cannot time the bottle. Oh, I got a chopstick-like wrapper and I put it in front of my daughter. And trying to test her like reflexes just to troll her.

She cannot catch that thing. Just like how people cannot catch. They cannot, like, whenever this bottom comes in, you cannot catch it. It’s just not. You scared me when you said that, I’ll say this on, on, on the record. I was like, oh, what? Oh, should I have to press the pause or what? Okay. So why am I saying outlandish things?

My second thing that I will bet on is I don’t think rents ever go down for longer than one to three years. I’m willing to take that bet. Why? With that said too, saying the stock market in the long run always goes up real estate. Oh, I don’t know. I don’t know. In Japan, that’s not the case.

And people say we could be like that, but rents never go down. I don’t know. And gravity works but. Anyway, We had some of these other things. We hit our time limit here. And we are looking to change the show and how, where do you guys wanna talk about? So if you guys have any feedback, please reach out to myself or Dean and we’ll see you guys next time.