Epic Real Estate Investing - Best Time EVER to Borrow Money to Make Money | 1058

Episode Date: June 23, 2020

All around the country businesses are finally starting to reopen but the economy has still a long way to go to fully recover! Still, this is a GOOD NEWS for you as a real estate investor when using GOOD DEBT, a strategy of borrowing money to make money! Stay tuned as Matt will show you how to use GOOD DEBT so you can accomplish financial leverage, which will make buying properties much easier, especially during this transitional period! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing Show for Turnkey Tuesdays with your host, Mercedes Torres. Hey, surprise, surprise. It is not the Turnkey Girl today. Yours truly Matt Terrio.

CEO of Epic Real Estate, really glad to have you here. This is your first time here. Glad you found us. Make yourself at home. Kick your feet up. Make yourself comfortable. And if you like what you hear, make sure you hit the subscribe button before you go.

And if this is not your first time here, welcome back. And thanks for your support of the show and sharing this with your friends and family. Really appreciate that about you. Mercedes asked me to sit in for her today because she had watched the most recent video that I put on our YouTube channel

all about how, to borrow money, to make money, and how this is the best time ever, probably in our lifetimes, to really consider doing that and just going all in. And she was asking me if she could talk about the same thing. I said, sure, why not? And then she's like, well, why don't you just pull the audio from the video and just plop it in there? Because I don't know if I could do it any better or any differently.

She didn't want to miss a nuance there. Of course, she does everything better than me. I don't know what she's talking about. maybe the summer's hitting her and she's just relaxing a little bit. But nonetheless, I see the value and I see why she wanted me to share this with you. So that's what we'll do. All right, so sit back, relax, and enjoy the show. All around the country, businesses are finally starting to reopen.

And many people are slowly being allowed to go back to work. But the economy still has a long way to go to fully recover. And yet, this could actually be good news for you as a real estate investor when using good debt, meaning if you know how to borrow money to make money. And I'm going to show you what I mean and how to do it right now and why there's never been a better time in your life to do it. But before we start, click the subscribe button and you'll want to stay till the very end of this one. Let's do it. Hi, I'm Matt Terrio, CEO of Epic Real Estate, where we show people how to invest in real estate

with an emphasis on retiring early. And today, I'm going to explain to you why borrowing money to make money can significantly accelerate your progress towards early retirement. And especially in this economy, most people have been taught their entire lives that debt is bad. And I can think of a couple people that are drilling this into your head on a daily basis right now. But isn't debt bad, you may be thinking? And why would I want more of it amid such economic turmoil? That's a logical question. If you're thinking about bad debt exclusively, but that's not the type I'm talking about. You see, there are two types of debt. There is indeed such a thing as bad debt.

But good debt is just as much of a reality. Think of debt as a tool, like a hammer. You know, with it, you can destroy things. You can shatter windows, you can bash through walls, you can break stuff, and even hurt people. But guess what else you can do with a hammer? You can use it to build things. With a hammer, some nails, and the right materials, you can build all sorts of stuff. Debt is the same way.

When you use debt for the wrong reasons, on the wrong, things, you can ruin your finances. You can slow your progress and even destroy your financial future. But if you know how to use debt the right way on the right things, you can create financial freedom moving you toward your early retirement at an accelerated pace. The difference between the two is like this. First, bad debt is money you borrow to buy things that depreciate and value that cost you. And by using debt because of interest, they can cost you even more than they would have if you had just paid cash. Using debt like this can really set you back. For example, Let's say you rack up $3,000 of credit card charges on a big shopping spree.

You needed Air Jordans in every color. I know. I totally understand. And you look good too, right? I mean, getting compliments at every corner, it feels great, doesn't it? But the problem is, these things aren't making you more money. Now you've got to pay back all that money you borrowed on your credit cards. Plus interest, 15, 18, 25%.

This is why so many people think debt is inherently evil. Because so many people do this. and end up to the neck up in bad debt. They're caught up in keeping up with the Joneses or the Jordans where they buy fancy things that they don't need with money that they don't have to impress people that, frankly, they don't like. This is the wrong way to use debt.

This is bad debt. There is a right way, though. In its simplest explanation, when you borrow money to make money, that makes it good debt. You can get rich using your own money for sure, but you can get wealthy using other people's money. And much faster, too.

And I'll get to how that works in just a second. Borrowing money to make money is called leverage. And it's what wealthy people do to get wealthier. And it's a result of the difference between the interest you pay on your debt and the returns you make on your investments. Like this. Say you purchase a $10,000 asset that offers an 8% return every year, meaning you'd earn $800 a year. Instead of paying with your own $10 grand, you go to the bank for a loan. Where they tell you, they can lend that $10,000 to you at a 5%.

interest rate. You agree and use that loan to buy the asset. So you're making your 8% return, your $800 every year, but you're paying 5% on the money you borrowed $500 every year, of which translates to you earning the middle 3%, $300 a year. And you didn't use a penny of your own money. When you have a good financial education, you can do stuff like this where you're actually using that bank's money more smartly than they're using it. That's the basic concept. And it doesn't have to be a bank's money, by the way. There are several creative strategies and sources of money to where you can execute this leverage concept as many times as you want without jumping through bank hoops or even using your credit score. Check the description below. Click, show more, and you'll see links

to these creative strategies and secret sources of money because when you apply this leverage idea to passive income real estate investments, it becomes really clear as to how an early retirement is possible. And with a little consistent effort, it becomes problem. Here, I'll show you. Let's say you and a friend are both going to buy your own investment properties. Each property is a single family home that costs $100,000, and they both produce 10% returns, or $10,000 every year. Most people don't have $100,000 cash sitting around, but let's say you and your friend both do. Your friend has a traditional mindset and is convinced all debt is bad. So they buy their house outright for $100,000 and earn $10,000 every year. Your friend has no debt,

no interest to pay, and outside of maintenance on the property, essentially no financial worries about this investment. But you're an epic investor and understand the strategy of using leverage to invest. You put $25,000 down on your house, you get a 30-year fixed mortgage for $75,000 with a 4% interest rate from the bank. Your house still brings in $10,000 every year, but you're paying $4,000 a year to the bank for the loan. And after that, you're left with a $6,000 annual profit. You are making less than your friend, but you remember, I only use $25,000 to do this. And that calculates very differently. If you're making $6,000 on a $25,000 investment, that makes your return 24%. And here's the good part. When you realize you've still got 75 grand

sitting in the bank and you have the ability to repeat your process three more times. Your friends unleveraged $100,000 is earning them $10,000 a year compared to your leveraged $100,000 earning $24,000 a year. And the cynic might think, yeah, but I still have these loans to pay off. But you don't. Your investment or your tenants in this scenario are paying the loans off. And this is called amortization, the silent wealth builder. Appreciation and cash flow, they get all the glory in real estate. but it's the amortization happening behind the scenes where your wealth is created. And you get the benefit from the cash flow while it's happening. That's good debt.

That's using debt the right way. Now, this example is all happening in a vacuum. It's not that clear cut in the real world. There are many variables at play and returns are never guaranteed, but there are no bad investments, just uneducated investors. If you're just getting started, investing in your financial education might be the best place to start. and you can use good debt there too. But in the midst of a financial crisis, this may seem like a terrible time or irresponsible at best to take on debt, doesn't it?

Not necessarily when you consider these two things. One, interest rates. Two, inflation. First, interest rates. Thanks to the current economic crisis, interest rates are falling. And right now, they're at all-time lows. You probably have received an email or two from your bank telling you that they're lowering your savings accounts interest rates.

rate. Again, but savings account interest rates aren't the only rates that are dropping. Fixed mortgage rates are too. Right now, borrowing money for real estate is cheaper than it has ever been. It's partly supply and demand. People don't want to spend their money on anything in an economic crisis, let alone a home. So, banks got to lower their interest rates to meet the falling demand. But stuff is happening on the other side of the equation that's driving them down further. See, when you leverage debt from the bank, they sell your debt to a government-sponsored enterprise, or GSE. like Fannie Mae or Freddie Mac. These GSEs then package your debt with thousands of others,

what's called a mortgage-backed security or an MBS, and sell it to investors. Like any asset, the price of these MBSs goes up as more people buy them. When the price goes up, banks can lower interest rates and still make money. The Federal Reserve just so happens to be buying billions of dollars of MBSs to stabilize the economy, driving 30-year fixed mortgage rates to these all-time lows. When the economy eventually recovers and people have more money to spend, interest rates will rise.

But your low interest will be locked in and unaffected. And when interest rates rise, buying a home becomes more expensive. And that translates to more people renting. Bigger pool of tenants for you. Point two, inflation. And what it does is it causes money to lose value over time. Inflation happens when the Fed stimulates the economy by putting more money into it. Under normal conditions, the Fed aims for 2% inflation per year, of which means your dollar today

will be worth 98 cents this time next year. After two years, it's worth less. And then again, it's worth less a year after that and so on. This is where the expression savers are losers comes from. This is bad news to most, but can be really good news for you as a real estate investor. You see, when you take out a 30-year fixed-rate mortgage, your monthly payment remains the exact same for all 30 years of the loan. Per inflation, your money shrinks by 2% a year.

But so does the value of your debt. Say your monthly mortgage payment is $500 and inflation is 2%. Next year today, you'd pay the bank $500, but thanks to inflation, you're really only paying $490 in today's money. And the year after that, $480.20 in today's money. And your final payment would only be worth $276 in today's money. about 55% of your monthly payment from this year. You're paying the bank the same amount of physical bills,

but because there are more of those bills to go around in your final year, each one is worth less. Frankly, the bank's getting the bad end of the deal. As an epic cash flow real estate investor, it gets better because you're hedged against this loss and monetary value. Over that same 30-year period, your tenant is paying you with more dollars to make up for the value their money has lost.

So, you get to collect and use more of today's money to pay the diminishing value of yesterday's debt. And should you sell that property, the buyer will have to pay you more of their dollars to make up for the lost value of their money too. The layman calls it appreciation when their property's value increases. But it's really inflation that causes your buyer to use more of their devalued money to buy your house. Now, back to current events. Along with the MBSs, the Fed bought tons of bonds from the U.S. government to help them get the cash to fund the stimulus package, like that $1,200 check you received. Now you know what happens when the Fed puts more money into the economy, inflation. And they're putting a lot more, an unprecedented amount of money into the system right now.

When you combine the lower interest rates, making money cheaper for you to borrow, and stimulus packages driving inflation at an unprecedented rate, of which will reduce the value of the money you borrow today faster than under non-crisis conditions, it's financially prudent to take on more good debt right now than probably any other time in your life. All righty? So if you found this episode valuable, who else do you know? There's a good chance you know someone else who would as well. And when that person's name comes to mind, share it with them.

Ask them to click the subscribe button when they get here and I'll take great care of them. All righty. That's it for today. God loves you. And so do I. Health, peace, blessings, and success to you. I'm Matt Terrio, living the dream. Have you been searching for a lender that is knowledgeable, experience, and we'll actually talk with you about your financial situation?

Well, we found them for you. Ridge Lending Group is Epic Real Estate's exclusive lender. And not only do we recommend rich lending groups to our listeners and our clients, they are the ones that we trust with our personal loans. Ridge Lending Group's CEO, Chaley Ridge, is not only a nationwide lender, focused. on the needs of residential real estate investors, but she is a real estate investor herself. She spent over 20 years helping educate investors and has created wealth for over tens and thousands of families over the U.S. And she will do the same for you. If you want it done right, use Ridge Lending Group. Go to richlendinggroup. Go to richlendinggroup.com. Click on the Get Started tab

And tell them I sent you, will you? You will get individualized financial and lending education with epic love. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.