Epic Real Estate Investing - Rising Interest Rates...Who Cares | 1242

Episode Date: November 10, 2022

Lately, we can hear a lot of chatter about the spike in interest rates. There is a widespread belief that the increase is causing people to pause their investments in real estate because the rates are just so darn high. Is it true? In today’s episode, Mercedes will give you useful information that will make you laugh at the misleading beliefs mentioned above. BUT BEFORE THAT, Matt holds an amazing real estate motivational speech. Are you ready? Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. There's this thing, real estate. You heard of it? Of course you have. It's why you're here. It does things for people. It makes big promises to people. It creates profits.

It creates commissions. It creates cash flow. It creates equity. It creates wealth. Will it do that for you? It makes big promises to people with big dreams. Real estate promises possibility to those pursuing the impossible. It's kept that promise to more people than anything else.

It's kept its promise of making millionaires. It's kept its promise of making billionaires. Nothing on the planet has such a track record. It continues to make those promises today. Welcome to the all-new, epic real estate investing show. The longest running real estate investing podcast on the interwebs, your source for housing market updates, creative investing strategies, and everything else you need to retire early.

Some audio may be pulled from our weekly videos and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, EpicR-E-I.TV. If you want to make money in real estate, sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to rei-Ase.com. Here's Matt. You have a vision, you have a dream. I know you do.

Will real estate keep its promise to you too? It depends. What promise did you make to it? Are you interested in real estate or are you committed to it? Are you committed to modifying yourself or will you ultimately modify your dream? You can lower the bar or you can elevate your know-how. You can shrink your dream or you can expand yourself. Which promise did you make or have you yet to make one? Are you going to think about it or are you going to be about it? This is your dream. Will you do what's necessary to? get it. You told people you're going to do this and they are watching. Some of them are rooting for you. Some are depending on you. Some are hoping you don't make it. Some can't wait to tell you,

I told you so. They're all watching. Bold decisions attract attention and you've got theirs. Promise or no promise. There's no turning back now. You've put your word on the line. You've made an investment, an investment of money, an investment of time, an investment in yourself. Did you think this is going to be easy? Did you just think the planets were going to magically align to deliver you to your dreams doorstep? Did you think you could do this without leaving your comfort zone? If someone told you that you could, they didn't told you wrong. Succeeding in real estate is a sport of participation.

You got to show up. You got to suit up. You have to participate in the lessons. You have to participate in the plan. It's a process. You have to participate in the practice. in the practice. You see, there's where you are right now, and there's where you want to be.

And then there's what stands in the way. And what stands in your way is the lack of a skill set. And you don't need the whole skill set right away. What you lack in skill, you can make up in volume. And what you do in volume, you will build up in competence. And when you participate in your competence, you gain your confidence. And confident participation leads to the realization.

of your dream. You have to participate in the mistakes you're going to make. You have to participate in the corrections you'll make. You have to participate in the repetitions. That's how skills are made. That's how you're going to get yours. It's the repetitions that lead to learning. It's the repetitions that lead to retention. And those repetitions won't get any easier, but you will get better. And when you get better, life will get better. It's those repetitions that lead to mastery. That's how it happens. This is your dream. When you declared it, it became your responsibility to achieve it.

So are you in? Are you ready? You are. I know you are. I know you are because I know to achieve your dream, you don't need to see the whole staircase to take the first step. Dr. Martin Luther King said that. You know him?

Yeah, he said that. You don't need to see the whole staircase to take the first step or the step after that one or the step after that one. You only need to see the first step and that's easy and I know you can do that and when standing on step one Step two is easy and then step three is easy and so on the fastest way up that staircase is to step at the speed of instruction Getting ready to get ready that's reserved for the ordinary you are extraordinary Extraordinary people step fast they move faster than their doubts they stay ahead of their negative thinking They start where they are, they use what they have, they do what they can, they start.

They dismiss their lack of resources, and they embrace their resourcefulness. They travel as far as they can see, and when they get there, they see further. And so will you. Because you can't steer a parked car. Correcting your course is easier while in motion than when at a standstill. You must get in and drive. You must be the driver of your real estate endeavor, and steer it toward your dream. your dream. Dreams fulfilled are a result of the dreamers participation. Get out of the stands

watching others participate in their dream. Get on the track and participate in yours. Those that led you to believe this would be easy, you know who they are. I'm in all the same social media feeds you're in. I see them too. You knew this wouldn't be easy. You wanted it to be, but you know it wouldn't be. No dream worth achieving comes easy. You knew that. You knew the mission was tough when you took it. Get out there. You got this. Success in real estate is not beyond you. Talent is not required. Consistency is required. Genius is not required. Persistence is required. Money is not required. Discipline is required. It's going to be frustrating. It'll be tiring. It'll feel unfair at times. Sometimes it will feel impossible. It'll be right all there up in your face.

You'll get sick of the grind, you'll feel like giving up, you'll look for reasons to, you'll look for validation to, you'll look for permission to give up. And you will find reasons to quit. You will make excuses to quit. But you can't deposit excuses. Excuses don't pay the bills. Those excuses are there, though. They will always be there. But this opportunity will not. And that little voice, it's there too. You know that voice. I know you do. If you're thinking, what voice? That voice, the one that's talking to you right now, That's the one I'm talking about. And it won't shut up. It'll never shut up.

The whole time it's whispering to you, it's okay. You gave it a shot. It didn't work out. No one will blame you for this. Everyone knows real estate is hard. So take a break. Head back to the couch. No one will notice.

No one will see you. They are watching. That voice is not your friend. That voice is a monster. And that monster doesn't sleep under your bed. It lives in your head. Rent free. Serve it an eviction notice.

Kick it to the curb, out on the street. Don't listen to it. That's what other people do. They listen to it. And if you do what they do, you'll get what they got. Do what they don't to achieve what they won't. Yeah, it's gonna be uncomfortable.

It may even be painful to continue, but it'll be more painful to stop. Remember those who said you wouldn't make it? They're watching. Don't give them the satisfaction. And when you feel that you've reached the end of your rope, tie a knot in it and hold on. The only person that can let go is you.

Stop focusing on what is happening and focus on what you want to have happen. This struggle, it isn't happening to you. It's happening for you. The pressure is good for you. This is how diamonds are made. You were given this opportunity because you are strong enough to seize it.

And it doesn't matter what others are doing. It doesn't matter what the market is doing. It doesn't matter what the economy is doing. What matters is what you are doing while they're all doing what they're doing. I mean, are you, winning or are you whining? Real estate it's the lowest paying easy work yet it's the highest paying hard work. That's why you're here you want to get paid and if you have

time to tell people how hard you're working you're not working hard. I mean if you're sitting around waiting for the perfect time if you're waiting for someone to save you waiting for someone to fix you waiting for someone to do it for you. You are wasting time and you can't recycle wasted time. If you want to have your dream as a reality. You will have to become someone you've never been and you will have to do the things that that person would do and you're still going to stumble. You will fail. But that is your opportunity to get back up and do it again more intelligently. That is your opportunity to practice your performance. That is your opportunity to perfect your technique. That is your

opportunity to persevere. This is your opportunity to finally fall through. This is your opportunity to win. Second place is not good enough. No, not this time. This is your time. You can do this. Anyone can do this, but most people won't. And that is your opportunity. Real estate keeps its promises to those that keep their promises to it. Your dream will not be a result of what you're thinking about doing. Listen, less dwelling, more doing, less learning, more implementing what you've already learned. You don't need more learning. You need more discipline. And the road to your dream is paved with discipline. But here's the thing. Discipline lives outside your comfort zone. So you got to take the fight outside. And watch this. The sooner you get out of your comfort

zone, the sooner you'll realize it wasn't that comfortable. Real estate promises possibility. Your consistent, persistent participation in real estate makes your wealth probable. It promises to you. You must meet it halfway and promise your consistent, persistent participation to get the probability from it. That's the agreement between real estate and you. That's how real estate moguls are made and you are a mogul in the making. But what if I fail? What if you fail? What if you succeed? Get out there. Yesterday you said tomorrow and tomorrow is today. You know what to do. Now do what you know. You promised. We'll be back with more, right after this. Boarding for flight 246 to Toronto is delayed 50 minutes. Ugh, what?

Sounds like Ojo time. Play Ojo? Great idea. Feel the fun with all the latest slots in live casino games and with no wagering requirements. What you win is yours to keep groovy. Hey, I won! Feel the fun! The thing will begin when passenger fisher is done celebrating.

19 plus Ontario only. Please play responsibly. Concerned by your gambling or that if someone close, you call 1866-5-3-1-2-600. or visit comicsonterio.ca. She's been helping busy professionals for more than a decade now build passive cash flow with real estate so they can take their foot off the gas a bit

and enjoy the good life. Let's raise our hands, unless you're driving, of course, for the turnkey girl, Mercedes-Torres. Hello, and welcome back to the epic real estate investing podcast. My name is Mercedes-Torres, partnering crime to Mr. Matt Terrio.

So I'm jumping in here as I hear a lot of chatter about the spike in interest rates. I hear so much talk about the increase such that the increase is causing people to pause their investments into real estate because the rates are just so darn high now. Holy buckets, I mean, I laugh. I find it funny and I find it funny because, see, I started investing in 2002-2003 when the rates were at a whopping 12 to 13%. Now, in comparison to today, that is high. But it's relative because at the time, rates were coming down from a whopping 20%. So we were thrilled to buy properties at a 12 and 13%.

at that time. Crazy, huh? Then there was a mortgage crash in 2008, and that mortgage crash, wow. I mean, one of the contributing factors to the crash was the boom in the subprime world, where anyone who had a pulse qualified for a mortgage. And remember the hype of the negative amortization loan? Oof, this contributed to the mortgage crash. And then the values of property, dropped enormously. And what I did during that time is I saw opportunity. That's when I jumped into real estate investing in the 2008 crash is when I just went to town buying as much as I could because I knew property values were completely down. And just because history repeats itself, I knew that properties were going to rise or the values in properties were going to rise. So now people are

freaking out because interest rates are in the mid 5% for like primary residents and perhaps 6% on an investment property. And of course, if you compare that to the low 2 to 3% that we had right after COVID, sure, 5% is higher. But in relation to the real estate investing world as a whole, is it really high? I mean, is 5 to 6% really high? Can you still cash flow? Well, the answer is yes if you buy correctly. And I'll get to that in a moment.

So what's going on with interest rates today and how much worse is it going to get? The reality is for homeowners, rates have increased for sure. Certainly higher than 2 to 3% that we had just a couple years ago, we certainly got spoiled right after the pandemic. But with inflation at a 9%-ish, if you can borrow money to buy an investment property or your primary residence, but particularly an investment property, if you can borrow money at a 5% to 6% interest rates. That means you're still making money from buying and holding property with inflation at a 9%. Now think about that for a moment. Inflation is north of 9% at the moment. And at the moment, you could buy properties at a 6% interest rate. You are borrowing money at a lower rate than inflation. So by default, that means you're being paid to borrow money. And if you don't believe me, then just do the math. Now, when you're doing the math, calculate that A, your tenant is paying down your mortgage, and B, your rents, your tenant rents, are increasing by 20% on a yearly basis. Now, that may

fluctuate by market, but by far, rental rates are increasing drastically each year. Now, I often get the comment from clients that feds are going to continue to rise the rates, so let me dispel something for you. Mortgage rates are not dictated by the feds. Feds do dictate a lot of things for sure. I'm certainly not taking that away. But mortgage rates are based on the 10-year treasury bond. Now, if you do a little bit of research and you pull up a chart called the TNX chart on the treasury bond, this chart basically measures the yield to maturity recently auction off of the 10-year treasury notes. But if you pull up this chart, you will see that in time, we started at a 1.2, 1.3. Now, today, we're at a 3 to 4, and the reality is that if you go back to just history,

history repeats itself. Now, people want it all. We want low rates and we want low home prices, but it doesn't work like that. Higher rates are a good thing. And here, Here's why. God is not building any more land. So supply and demand are a thing right now. Currently, the existing supply cannot meet the current demands. Let me say that again. Currently, the existing supply of single-family residence and investment properties cannot meet the current demand of our growing population. So as an investor, at the very least, buy one property a year and hold it. So you're thinking, how do I buy an investment property? Isn't it hard to get a loan? Well, it depends. The government, let's just start there. There are Fannie Mae and Freddie Mac loans that you could qualify for.

You could qualify for up to 10 loans with as little as 20% down. Now, Freddie and Fannie have removed some of the hard restrictions that got bumped up during COVID, and now you can literally buy a property with as little as 50% down. Now, you do have to qualify for that. But honestly, it's not that difficult to qualify if you're employed. If you're self-employed, the bank has a lot of. loan called a low-doc loan. It basically stands for limited loan documentation, but there are loans out there that you can literally qualify for as a self-employed individual with just your bank statements.

Now, again, you want to contact your mortgage banker, and if you need help finding one, please let us know we're here for that. However, there's opportunity for you to buy a property with a Freddie and Fannie government-backed loan if you are self-employed and if you don't have a W-2 paycheck, just FYI. Now, there are also investment loans. Many of these loans come from hedge funds, so they base the loan on the asset,

meaning if the property cash flows, the bank will loan you money knowing that a tenant is occupying your property and paying rent, which in turn pays the mortgage. Now, these loans are a bit pricier, but the property is literally being paid by your tenant. So who cares what the loan cost and what the interest rate is? Now, you certainly don't want to get reckless,

but if the plan is to buy and hold, it will make financial sense to buy the property with a minimal down payment and giving the privilege to a tenant to pay your mortgage. Now, I did say giving the privilege to a tenant, meaning that there is a limited amount of supply, a limited amount of investment properties, and the reality is that people need a roof over their head.

So they have the privilege of paying rent. that gets them a roof over their head and you, in turn, provide a home that is safe and comfortable, you get to reap the benefits as an investor, and you reap the benefits of the return on the investment. Now, as for me, for my special tenants, the ones that have been in my properties for a long time, I treat them extra special. So if, for example, one of my long-term good tenants wants to upgrade their kitchen or their master bathroom, for example, I will do it for them and I will spit the cost with them. So it's a win-win all the way around.

I get a happy tenant with an upgraded bathroom that they've only paid for a portion of it, or I increase their rent to make up that investment in their new kitchen cabinets or their new master bathroom. Win-win for all of us all the way around. Now, back to the loans. There are some loans today, and I'm hearing more and more talk about it, about a 40-year loan. It's starting to become a little bit more popular.

and disclaimer, not every bank offers it just yet, but this certainly helps with cash flow. As now, you are amortizing your loan over 40 years instead of over the standard 30 years. So what happens there? That makes your monthly payment drop, meaning your cash flow increases. Now, of course the bank makes money because the bank is now, making money on the fact that they get to charge you interest for an additional 10 years, but the reality is you can always refinance it or pay it off at 30 years if you want to. Now, that increase in cash flow is money right into your pocket every single month.

And this cash flow in a changing market, cash flow has dropped quite a bit because rates have gone up and rents haven't quite caught up yet. So our cash flow may only be single digits today, but real estate wealth doesn't happen overnight. It's a gradual thing that happens over time. And while the cash flow still exists in a much smaller banner initially, focus on the other profit centers that a buy and hold rental property grants you. Let me dive into those really quick because I think they're so important, but they're certainly understated, and most people don't understand it. So let's dive in.

First, I mean, we've already talked about cash flow, but now we're going to talk about your return on amortization. This is your tenant paying down your mortgage by paying rent every single month. And this rent payment that you receive, which of course ultimately goes and pays the mortgage, will create a percentage on your return as they're paying your property down, but you get to write off the interest rate that you are paying. So that's the second benefit to you, or I should say the third benefit in this case, the tax deduction. Speaking of tax deductions, you get to write off 27 and a half years of depreciation on the property itself.

That's another profit center. Now, you can't depreciate the land, but you can certainly benefit from the depreciation of land. the structure. That said, you're also benefiting from appreciation. Now, that's kind of a given. Everyone kind of knows what appreciation is, but you're holding on to this property while your asset just appreciates and appreciation fluctuates across the market and over time. And reality is, nobody has a crystal ball to determine the appreciation rates or what's going to appreciate faster, or what's going to appreciate more in one region of the country, because sometimes appreciation happens relatively quickly,

and sometimes appreciation happens at a much slower rate. There is no crystal ball, like I said, that actually dictates or that actually explains to us what appreciation is going to be like next year. However, there is one constant to appreciation. and that's history. I've said it a couple times, but it repeats itself, and appreciation is a given. Consider it a gift because I seldom factor appreciation into my calculations.

I just consider it extra. I consider a gravy on top of my whole investment because I know I'm going to get it. I don't know how fast or how slow or how much. I just know I'm going to get it. Now, this is one of the main reasons why I love real estate. Matt and I always say real estate is the final frontier where the average person has a legitimate chance of creating real wealth. Because let's face it, not a whole lot can go wrong when you're buying and holding real estate.

Now, of course, you're going to have your naysayers, you're going to have your turnovers, and then you always are going to have that. What if I get a call from the tenant in the middle of the night? Because the water heater broke down at 2 a.m. Let me tell you, in 17 years of being a real estate investor, this has never happened to me. Sure, I've had to replace a water heater, I've had to replace air conditioning units, even roofs on properties. But when that happens, I get a call during normal business hours from my property manager.

And the issue gets fixed by the property manager's maintenance team. And those calls, they don't happen very often. Why? Because I do a really good job at rehabbing the property once I've taken ownership and before I put tenants in this. all this to say that the increase in rates, they just don't really matter. If you purchase the property to buy and hold it and the property cash flows from the get-go, or if the market breaks even, especially if you've locked your loan for 30 years, if you locked your rate for 30 years, I mean, all in all, this is the smart way to go.

because it takes all the guessing out of your real estate equation. I jumped into it a little bit more, but when you're locking your loan at whatever rate it is, that's relatively reasonable to the time, and you could still cash flow or break even, when you're locking your rate, lock at a 30-year fix, because that takes the guessing out of the real estate equation.

You don't have to worry about the fluctuations in the market. You don't have to worry about the feds raising the rates, as everybody says. You just have to understand that, okay, my property has to remain tenanted in order for me to cash flow and for me to benefit as a real estate investor. If the rates drop drastically low, then down the line, you can refinance. If the rates increase, then you have nothing to worry about because you've locked the loan for 30 years. Now, if you're breaking even in cash flow the first year, I can almost assure you you are going to be profitable in four other profit centers that I've shared with you. And if you're breaking even today with cash flow, wait until next year when you increase,

the rent. And the year after that, and the year after that, because every year, if you do one-year leases, you have the right to increase your rent. And I'm not, I'm not talking about gouging your tenants. I'm talking about increasing the rent normally as everybody else in America does. It's expected by your tenants, and I am huge fan of increasing rents to keep up with what the market is doing. Speaking of 30 years, America is one of the only countries in the world where you can actually get a 30-year mortgage. How's that? Today's world, a 40-year mortgage is starting to be introduced. So be on the lookout for that bank that's offering the 40-year mortgage. All that to say is don't let the rising interest rates keep you from building your wealth. So hope this tidbit of information was food for thought

because at the end of the day, do not allow rising interest rates, the treasury, the feds, anybody to dictate how you're going to create wealth for you, your future, and your family. Have a great day. Until next, week. Keep it epic. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings and success to you. I'm Matt Terrio. Living the dream. is a part of the C-suite radio network.

For more top business podcasts, visit c-sweetradio.com.