Epic Real Estate Investing - Get Rich Education - Keith Weinhold | 553

Episode Date: December 27, 2018

Meet Keith Weinhold, an income property investor, a podcast host, and a best-selling author, who is here to share the secrets to becoming successful in the real estate business. Learn what it takes to get the real estate career started, how to employ other people's money ethically, and why it is a great time to be a real estate investor. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Middle class people, they just think, what could I possibly do that's better than getting my money to work hard for me? But the pivot point to wealthy people in transferring their mindset from active income in the middle class to passive income in the wealthy class, wealthy people don't just say, what can I do to get my money to work hard for me? They say, what can I do to get other people's money to work hard for me? that's a mindset shift. Hello, I'm Matt Terrio of the Epic Real Estate Investing Show and welcome to another episode of Thought Leader Thursday.

All righty, so today I'm joined by founder of Get Rich Education hosts one of the America's top investing shows weekly by the same name. He's member of Forbes Real Estate Council. He's been an active income property investor since 2002 and he's author of the Amazon number one bestselling book, Seven Money Myths That Are Killing Your Wealth Potential. So please help me welcome to the show, Mr. Keith. Weinhold, Keith, welcome to the show.

Thanks so much for having me, Matt. You bet, you bet. Hey, before we get into your real estate and what you're up to, what were you doing just prior to getting involved in real estate? Well, I worked a day job as a construction materials technician, just an everyday job. But, you know, when I was raised in upstate Pennsylvania, I was raised to lower middle class parents. And, you know, they were pretty frugal.

But my dad instilled something inside me. my parents really instilled a sense of travel inside me. And, you know, my dad kind of asked me to kind of ask yourself a better question in life, Keith. If you're not passionate about your job, don't let your job define you. You know, ask yourself a better question. What kind of life do you want to design for yourself? And if you want to be extraordinary, sometimes you need to be unusual. And my father wasn't entrepreneurial or he wasn't into real estate investing, but, you know,

he just kind of instilled in me. If you can find out a way so that you don't live to get paid, and instead get paid to live, you need to do that. So I began investing in real estate on the side while I was a construction materials technician. Got it. Cool. So getting paid while you sleep was kind of what was the inspiration and the advice from your dad? Yeah, that's right.

And, you know, passive income, that's kind of mythical, I think, to some people, Matt. Some people don't think that that's a real thing. But, you know, one of the places I traveled to when I was busy, being raised in Pennsylvania was to Alaska. And I made a few successive trips to Alaska and pretty soon it got inside me that, hey, I need to live where I want to live. I have enough confidence that I can make money follow me rather than most people. They follow money.

They kind of follow a job and let's something that they're not passionate about sort of dictate where they live and the kind of lifestyle that they live. So Matt, shortly after moving to Anchorage, Alaska, where I still live today, which is something that I long wanted to do. I kind of fell in with a crowd that I would call like an aspirational group of friends. And two of those friends, Matt, they made the first home that they purchased, not a single family home or a condo, but they bought a fourplex building, lived in one unit, and ran out the other three.

So I think we've all heard the Jim Rohn quote, you are the average of the five people that you spend the most time with. I fell into this aspirational crowd. So when it was time for me to come of age in Anchorage, Alaska, and buy my first home in 2002, in one fell swoop, I went from a rent-paying tenant one day to the landlord collecting three rents the next day in a four-plex building where I lived in one unit and rented out the other three. And, you know, this is still a very actionable thing for the epic real estate investing audience, Matt, for some people, because still to this day, you can get in with the same loan program I got in on with a three and a half percent down payment on an FHA loan. You have a 12-month requirement minimum to live there.

I didn't have much to get started, but I learned from self-education and through falling in with an aspirational crowd that it really doesn't take that much to get started. Mostly it takes overcoming some fear. Mm-hmm. Got it. Yeah, no, fear. It holds everything. back in it to some degree. You said something that right in the beginning there that you said,

most people think passive income is a myth. Why do you think that is? Why is it so hard to believe? I think it's so hard to believe because middle class people are generally programmed to still trade their time for dollars. And, you know, this whole notion of passive income, that's basically using other people's money for your gain. And it's really a stratification system between poor, middle class, and wealthy and their respective

mindsets. So poor people, they work for money and they really don't have anything left over at the end of the month. Now, wealthy people, they also work for money. They have some money left over at the end of the month. They typically invest in stocks, bonds, mutual funds, vehicles through their IRA or their 401k or their 403B. And here's the thing, Matt, middle class people, they just think, what could I possibly

do that's better than getting my money to work hard for me. But the pivot point to wealthy people in transferring their mindset from active income in the middle class to passive income in the wealthy class, wealthy people don't just say, what can I do to get my money to work hard for me? They say, what can I do to get other people's money to work hard for me? That's a mindset shift. And the great thing, Matt, is everyday people can employ other people's money through, three ways at the same time, really much like I did back with the Foreplex building. How do you ethically employ other people's money at the same time without any formal training or without a lot of money? Well, you can use the bank's money for loan and leverage.

The second way you use other people's money is the tenant's money for cash flow, to your point, that's that passive income stream. And then the third way you can ethically employ other people's money at the same time as an everyday person is you can employ the government's money at scale with things like tax depreciation and a 1031 exchange, which means you legally never need to pay capital gains tax on any of your gains. This is something that's available to everyday people, but you're taking a page out of the wealthy playbook because you're employing other people's money. If you're just trying to get your money to work for you in the middle class, the gains you think you're getting aren't your gains. When you consider the deleterious effect,

of inflation and emotion and taxes and fees and volatility in your mutual funds. You've got to think like the wealthy. Employ other people's money. Got it. Got it. You know, we're in here at the, I mean, no one has a crystal ball, but we're here at the end of a long run of a really good market. The overall economy has been really good.

How do you feel about investing today? That's a great and timely question, Matt, because some people are like, well, real estate values are up now. And now interest rates have begun to creep up. But let's look at things contextually. Like, you're going to invest in real estate or you're going to invest in what? So it's kind of a game of compared to what. I mean, first of all, mortgage interest rates are still near historic lows.

They were 18% in the early 80s. They bottomed out a few years ago with 3.3%. So, you know, just look at those bookends. They're still historically low. If you think mortgage interest rates are going to be 7% in three years, you're going to be a lot better off buying now. Mortgage interest rates are still low. The demographics are actually great for real estate investors. More millennials are entering prime renter age, and I think most people know that millennials are the largest generation. Three years

ago, they passed the baby boomers in size. And what does a millennial's financial picture look like? Well, sadly, for a lot of millennials, college costs have risen faster than inflation. Well, that means that millennials are saddled with this student loan debt. They can't come up with a down payment for housing. A greater proportion must rent, and that's really good for us as real estate investors. So that's sort of a demographic component, Matt, as to why it's a great time for real estate investors. There's also something I will call a psychographic component. You know, years ago, millennials saw their parents lose their home in the mortgage meltdown of 2000. or saw their parents be underwater on their home.

And that underwater condition where their mortgage balance was greater than what their home was worth meant that they couldn't even move if they wanted to move. And because this happened in millennials' formative years, some millennials still have this just negative association with homeownership. And that drives rental demand. And, you know, back to demographics for a second, Matt. Here's something that almost no one thinks of because if you live in the United States in Canada, you just almost forget.

get the fact that the overall population keeps increasing. In fact, the U.S. population keeps increasing at more than 2 million people per year. Well, that just drives the economics 101 of supply versus demand. And it's very easy for you to take this for granted if you're listening in the United States or Canada right now, but population losses in places like Japan and Greece and Spain, they go on to create excess housing supply there. And you know what else? Even if the U.S. population stayed the same, housing demand would still grow among that same population. And why is that? Because look at what the millennials are doing. They're postponing marriage and household formation longer. So instead of two people sharing one home, now oftentimes you have two people in two separate homes for a longer period of time,

and that creates more housing need even in a fixed population. So for these reasons and more, we now have one of the lowest home ownership rates on record. And that kind of sounds bad for real estate in a sense, but it's actually good for real estate investors when we want to buy a property and have them rented to others in order to have that passive income stream for ourselves. Right, right. Yeah, you're preaching to the choir, Keith. What does your business look like today? My business looks terrific. I, you know, I'm diversified. I am in a lot of different geographic markets, and that's so important. Because in my home market of Anchorage, Alaska, where I do own some apartment buildings,

those no longer provide cash flow. They just cash flowed three years ago. And why is that? It's because my city of 300,000 people, Anchorage, Alaska, is in an economic recession because of what happened to the price of a barrel of oil a few years ago. So if I were like most investors and only thought about investing in my own backyard, I'd be in some real trouble right now, but fortunately, I'm in multiple markets. The geographic market that you invest in is even more important than the property itself. That's something that

novices overlook, but mortgages are supported by cash flowing income streams and you need to have a tenant with a job or some stable income in order to create that income stream for yourself and control that mortgage. So it's so important to own in multiple geographies. Owning in one geography is a lot riskier than a lot of people think. Right. You know, you mentioned something you might have touched on a little bit, but what do you see is the biggest mistake that people make when they're starting getting started investing in real estate?

You know, a lot of people have an awful experience in real estate and they get jaded and they never want to invest again. And you know why, Matt? It's because people start with the property. You don't want to start with the property. When you're going out and looking at creating passive income streams for your yourself through real estate. The property is only the fourth most important thing. Okay, now how do most people select a rental property? They're not very strategic. What they might

do, Matt, is they might, you know, drive a round trip commute to work and just say they're always driving past this pretty yellow duplex twice a day. This duplex with shutters on it, it seems like it always has nice landscaping. And then one day, that potential investor and commuter drives by it. And they see that there's a for sale sign on that duplex. and they always thought it would be good to have rental income and, you know, diversify out of stock. So they buy this duplex just because it looked pretty and it was close to them. Well, they're making a mistake of letting emotions get in the way and starting with the property. So pull back, get strategic.

First ask yourself, you know, what do you want real estate to do for you? Do you want it to provide you with appreciation or tax incentives or passive cash flow, which is a common thing, or lifestyle investing for yourself or something else. What do you want real estate to do for you? That's number one. The second most important thing is what is the market, whether that's a geographic market or whether that's use type, what market is going to support what you want?

And then the third most important thing is that team of professionals that you engage that help you secure the property, especially your property manager. You know, you've got to think, you know, why are you investing? You want to get a good return on life, not just a good return on investment. You don't want to be the one handling tenant phone calls that the bathroom cove base came up again and you need to go replace it or whatever. So it's really the quality of your property manager that's the third most important thing. And then fourthly and only fourthly is the property

because if you, the market and the team, especially that manager, aren't all aligned, then it just doesn't matter how good the property is. When you approach things that way. What do you want? What's the market? What's the team? Then you're ready to go look at property. You're so much more like that it be successful as a real estate investor. Right. Yeah. No, I tend to agree with you. I would actually flip number two and three, though. I think the team is probably most important, particularly the past. No, if anything's interchangeable, I would agree that it is those two. But most importantly, it's a communicative manager. That's the most important part of your team. Yeah. I mean, there's no cash flow in this. You have a good one

of those. Right? And when you have a good one of those, hold on to them. Totally. Totally. I totally agree. So super. So what's coming up in your future that's got you super excited there, Keith? Well, a lot of things. I love to travel around to different markets. And, you know, one of the places I travel to, one of the things I invest in is it's typically residential real estate investing, but agricultural real estate investing is something else that I invest in, even in something like coffee trees in Panama. It's a great diversification play away from residential real estate. And it's a bit different. You get cash flow annually from crop harvest. So, you know, when you think about what are humans going to need for the long term? Because I want to invest for the

long term, because I'm going to be around for the long term. What do humans need to do for the long term? Number one, they need to live somewhere, residential. And number two, they need to eat. And Agricultural real estate investing, it's a different model, but it does provide cash flow. Oftentimes, you cannot get loans for foreign agricultural property, and you're not using other people's money in that way. So that is one negative. Americans aren't going to very well get loans for foreign agricultural property. Right, right. If we could figure out how to invest in that oxygen thing, that would be good. Something else we all need, yeah.

Yeah, definitely. So if somebody wanted to get in touch with you, Keith, what would be the best way for them to do that. The best way for them to do that is at get richeducation.com and the get rich education podcast. And on the get rich education podcast, we simply and actionably build real estate wealth passively with an abundance mindset. And again, passively, you don't necessarily want to be a landlord or a flipper so much, at least with what we talk about because those things are jobs. And we really have pretty high-end guests on the show.

Robert Kiyosaki has been on the show a few times, has really, Rich Stad advisors are frequent guests. So it really all starts at the Get Rich Education podcast. How to strategically, passively build well for yourself. Super. Well, congratulations on your success, the best of luck to you in the future. And let's come back and do this again. Thanks so much for having me, Matt.

I love talking about this stuff. Take care. Yeah, you bet. All righty, thanks for tuning in to this episode of Thought Leaders Thursday. I will see you next week on another episode. To your success, God bless. I'm Matt Terrio. Live in the Dream.

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