Epic Real Estate Investing - The Supply and Demand Crisis, Protecting Your Assets and Economic News | 1131

Episode Date: March 12, 2021

This Friday, Matt shares 8 supply and demand factors every real estate investor should monitor and gives an update on the nation’s economics. But that’s not all! In the second portion of today��s episode, Matt is joined with Robert Bluhm, a national leader in asset protection and an attorney for over 3 decades. Stay tuned as Matt and Robert discuss what type of entity an REI newbie should choose in order to get protected, what is the difference between LLC and corporation, and much more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit R-E-I-A's.com.

Here's Matt. Hey there, Rockstar, Matt Terrio from Epic Real Estate here, where we show people how to invest in real estate using more of their mind than their money, using creative real estate investing strategies with an emphasis on retiring early. And if this is your first time here, really glad that you found us. 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 thank you for sharing this with your friends and family.

I just would not be here. If it wasn't for you doing that, you're the absolute best for doing that. So thanks again. You know, I've got another great guest for you today, a great show overall, especially if you want to protect all of the money that you're making and all of the wealth that you're building to make sure the bad guys don't get it. And I've got the news for you today as well. But first, let's look at the housing market.

I mean, is it finally showing signs of adjusting? Is it showing signs of maybe even crashing? Here's what I mean. The National Association of Realtors reported last week that, pending home sales nationally dipped 2.8% from December to January month over month. And that's a real dip the first time in several months. So with interest rates just now coming off record lows and supposedly so many people on the move out of crowded and suppressed cities into the suburbs, the rural areas,

I mean, how could that be? And if that's what's going on, well, there are many factors at play. And they are changing and evolving by the day. And I'm doing my very best to keep up with it. it because, you know, one day you get a report that points that, oh, my God, the end is coming. And the next day you get a report like, oh, my God, nope, we're going to be here for a while. Everything is just fine. We're going to continue to appreciate.

And other reports are like, oh, my God, no one's ever going to be able to buy a house again because they're going to be so expensive. So that type of information just seems to be coming out at a higher clip than I ever remember it coming out before. It's probably because there's so much stuff going on. I mean, it's not clear as to exactly what is happening. But something is happening. You know, the market is certainly on the move.

It is alive and breathing and, you know, it's kind of cranky, kind of ornery. Some days it's in a good mood. Some days it's in a bad mood. But is it going to crash? That's the question that we're all kind of thinking about. And if so, when is it going to happen and what's going to cause it? You know, in the simplest explanation, the thing that I just always look at is supply and demand. Because supply and demand, that runs the show, not just for,

for real estate, but really the overall economy for the free market, right? So the more demand exceeds supply, the higher the prices get. And we're seeing that dynamic in that, at an extreme state, in a side of an extreme state right now, as the listing price for homes for sale grew by 15.4% year over year in January to $346,000. That's according to realtor.com. That's the median price point for a house. Like, it was $100,000 less than that for the median house just not too long ago. But as prices rose, sales actually fell.

So is it because the sales prices have become too high? Maybe it's just getting way out of hand and less unless people can afford it. And some people may be thinking that. In fact, I know some of the people that are thinking that because I read the comments on on my YouTube videos. But it's actually more than likely due to the supply of homes for sale that have fallen to a record low. The supply is down 25.7% year over year.

While demand is unrelenting, demand is not going anywhere. It's not showing no, any signs of quitting. But the supply is down a quarter from just this time last year. That's huge. That's ginormous. That's just monster. You know, and a chief economist for the National Association of Realtors, Lawrence Yun. It's funny, with all the research I'm doing, and now I'm starting to know who these people are. But he says, sales easily could have been 20% higher if there had been more inventory and more choices for the buyers.

So when we look at a supply and demand, I mean, how did it become so out of whack? You know, how did supply and demand in the housing market get to a point that we've never, ever seen before. Because at the moment, I'd consider this a crisis. But could it be on the brink of seriously correcting itself? How would we know? Well, first, what may feel as an immediate contradiction to myself, stay with me. Because it could be on the brink of seriously correcting itself.

But I'll say the supply and demand picture of the, of the, market. It may never totally correct itself. And here's what I mean. Big picture. The demand in real estate, that's the people, right? People need shelter. They need to live somewhere. They need protection from the elements. And that's not going to change. That's a trend that we can pretty much rely on. People are going to need food. They're going to need water. They're going to need oxygen. And they're going to need shelter. So we can count on that demand, not being. being affected by outside sources. And so when you look at the people as the demand, we're growing as a population.

People are making people. They like to do that. And each generation is a little bit bigger than the previous. And the big picture supply in real estate, that would be the land. Now, the land, we got a lot of it, but it's still fixed. We've got what we've got. We're not making any more land. and based on the big picture supply and demand conditions,

we can expect values in the housing market to continue to drive upward indefinitely. And what I mean by that is there's enough demand, and you've heard me say this before probably, that's walking the earth right now to promise that during yours and my lifetime, regardless of how old you are at the moment. And this alone, it makes a very strong case for buying and holding real estate, state to be an extremely low risk, high reward investment. And for some people, probably not you, because this is what you're into and you understand

the value of real estate and that's why you're, you're listening, right? But the common consensus is real estate is risky, right? The bottom is going to fall out and everyone's going to lose their shirt. But despite that common consensus, I'm comfortably very, very, very, very, comfortable and very confident arguing the opposite. There's very, it's very low risk in real estate, in my opinion. If you do it right, of course. But when we speak of that, the risk, however, it does come into play when trying to time the market, when selling your real estate. Buying and holding, you should be good to go as long as you don't over leverage and, you know,

nothing else extreme happens to any of other income sources that you're relying on. But the real estate itself should be fine. I'm all in on that. But trying to time the market when you're selling your real estate, that's almost impossible to do consistently with any certainty. But people, they continue to try, thus sometimes people lose. And here's why. Because there are many factors that can and will cause the supply and demand conditions to fluctuate along the way. Causing prices to rise and fall and rise again. Then they'll fall a little bit and continue to rise again and fall a little bit and continue to rise again. And that's going to continue.

And many of these factors, though, they aren't economic in nature. And this is kind of what real estate investors look at are all these little economic indicators and try to make their predictions as to where the real estate market is going to go. But many of these factors right now aren't even economic in nature. So, you know, consider COVID-19, which brought basically new construction to a halt for a little while. It paused home sales for a period as people stayed in their homes and it caused building materials to be intermittently unavailable. And that all happened. That's real. And it is happening still.

But what other supply and demand factors do we real estate investors need to closely watch? Because they're all on the move right now. It's a very active market. Things are going up and down and they're going and some of them are going in unison with each other and some of them are going in conflict with each other. So let's go through this. I've got eight of them. Number one, mortgage rates. And this is a biggie, right? That's no surprise because mortgage rates, they rise and fall. And when they do, so too does affordability and the purchasing power of the consumer, which directly affects supply and demand. So if rates stay low, more people can afford to purchase a home. So demand goes up. Well, last week, rates just, they popped up above

3% for the first time since the summer. Then they slipped right back down under 3% the very next day. And it just popped up a little bit again and it went back down. So the bottom is being tested right now. We're essentially at the bottom. They might not be lower than they are right now. So that's something to consider. Number two is builder confidence.

New homes that those are built or not built adding to the supply based on the comfort of builders doing so. So we can monitor their feelings based on the number of new housing permits being pulled, based on the new housing starts, of which tends to be a leading indicator of when we can expect new supply and how much of it to hit the market. And right now, housing starts are as high as they've been since 2006. And builder confidence has just slightly pulled back from its all-time high.

But historically, builder confidence is still extremely high. high right now. I mean, it's all-time high was just like two months ago, three months ago. And it's pulled back a little bit, but even where it's pulled back to, if we didn't hit that peak a couple months ago, we would be at the all-time high right now. And that would seem like new supply is on the way. But then we must consider, number three, building materials, something that we haven't had to think about for a while. Not in my recent memory for sure. So the cost of materials will generally push housing prices up or down, as builders pass on their costs to buyers.

And I don't know if you knew this or not, but the lumber prices, those are, they have tripled in the last 12 months. So it's almost three times as expensive for a new home builder to build a house than it was just 12 months ago. And builders will have to make up that cost on the sale

to keep their profits and their production at stable levels. But current buyer demand so far, it's strong enough to offset these rides. cost, at least for now. The buyer demand is really, really strong. And then just this week, or last week, actually, depending on when you're listening to this, but last week, let's just say recently, it's tough to speak about current events on the podcast because you may be listening to this five years from now.

Happens all the time. But just last week, recently, breaking news suggested that housing starts may hit the skids now due to a lack of lumber. So everyone was kind of expecting that. But now there's a new material that's an issue. shortage, and that's flat steel. And those are two essential ingredients for building new houses. So the price of materials, that's one issue, but their availability, that's another. And then there's even more to consider. So stick with me. And by the time we're all done here,

you're going to be the smartest person in the room the next time the real estate market comes up in conversation. That next happy hour party, the next dinner party, the next wedding, whatever it may be that you get together and real estate comes up. You're going to know a whole lot. So hang in there. Number four, household. incomes. So the more or less people earn generally puts pressure on the housing prices going up and down. Low incomes are also symptomatic of an unhealthy economy, which is also likely to affect housing demand and prices downward. And, you know, as of this year, if you're just watching exclusively the news and paying attention to mainstream media, loss of household income has been

getting all of the headlines over last year, you know, because people are suffering. and people are unemployed and, you know, they're hurting. And so how you would think household incomes are way, way down. And they very well are for some people. But that income, it's not lost. Like that income doesn't stop. It just goes somewhere else. There's a great book called Who Moved My Cheese.

It's a short read. It's a good book. It gives you an idea going forward. But really good for entrepreneurs because sometimes people just get their cheese moved. It's about these little mice or rats in a maze. And they go report to their maze every single day. And they know exactly when to turn right, when to turn left through this maze to where they find their cheese. So they become very conditioned. Every morning, they're let out of their cage and they go right to the cheese every single time. They know exactly how to get there.

Then one day, they go there and someone and their cheese isn't there once they get to the end of the maze. And now the rats are pissed, right? The cheese is still in the, maze, just the person, the maze master, moved it somewhere else. And that's kind of what's happened to incomes right now. You know, many people, they've suffered financially during the pandemic, while just as many thrived. And many of them had record revenue years. Not to mention U.S. household net worth. It's soared in 2020 to surpass pre-pandemic levels. So the average household net worth is way more right now than it was in or before the pandemic hit. Those household incomes, something that's closely related to that.

I kind of touched on it briefly was jobs. That's number five. So the more jobs a city, town, or state has available are going to dictate the positive inward migration incomes and therefore demand for housing and what people are willing to pay for homes. And when unemployment rises, it typically increases housing. supply and decreases demand causing home prices to fall. And right now, this is a key factor for us to watch as the new official job report was released just last week, exceeding all expectations,

having us currently sitting right at 6.2% unemployment. And there's a lot of people that really celebrated that number. It has a lot of people feeling like, yeah, the country is opening up and we're moving in the right direction. But according to a recent statement, statement by chairman of the Fed, Jerome Powell, more than 5 million people have left the workforce completely, entirely,

and aren't being counted in the official job reports. And so Powell, he estimates that unemployment is probably closer to 10%. So that's actually pretty high historically. But weirdly, so still are prices.

And so that's one of the things that kind of contradict each other, right? But it's just one of little nuances. So number six, household debt. So the more consumer debt someone holds basically the less they can afford and they're more susceptible to the economic downturns. And if credit card debt increases dramatically, households may they put off home buying as they pay down that debt, decreasing demand for housing. But the inverse is also true. And what most people don't realize, or maybe you do,

credit card debt dropped sharply in 2020. People paying off their debt. They cut back and they started paying down that debt, thereby potentially that could be very well contributing to the demand that we are seeing right now. Because still, as low as interest rates are, they're still kind of difficult to get a home loan. So for so many people to have access to this, they've been working on their credit scores.

They've been paying down their debt. And that's how a lot of this is probably happening, or a big portion of the demand that's being fueled by that. Then there's no number seven. The local market factors. You know, positive or negative migration into a geographic area will have a dramatic impact on housing, supply, and demand. An unhealthy economy or maybe like an anchor employer shutting down,

those are, you know, that's one example of local economic factors that will drive demand down and supply up as homes come on the market as people leave. And we're seeing right now mass migration from big cities to the suburbs, you know, and they're doing that because of health concerns, public safety concerns, and failing political policies. And that right there, that is actually in a category all by itself. That's number eight, policy. So we've got local and state level legislation and rules that can have a dramatic impact on

housing market supply and demand, and then consider favorable tax incentives and low development fees for builders. This makes it more economically feasible for builders to build new homes. homes and thereby, in result, it increases supply. And then there's high taxation, heavy regulation, and a slow building permit approval process. That can all cause the opposite, right? And that can decrease the supply.

And then there's national policy, right? And we haven't really had to think about this to any real great extent for a very long time. But we've got an entirely new leadership style. and a new agenda essentially that's in charge of the country. And thus far, their actions have been bold. And their future plans, if you're listening, are even more so. And right now it doesn't matter who you voted for. None of that matters.

It doesn't matter how you feel about it. There's no room for feelings or emotions and investing. We just look at the numbers. And then we got to look at these outsides forces that I've been touching on and how that's going to impact the housing market. So what's going on with policy and regulations, I mean, some of the stuff is so extreme, you know, they just called this recent, the stimulus bill, the most progressive bill ever passed in the country's history.

Now, I don't know if that's true or not, but the point being is, if it's the most aggressive, it's going to have an impact that we've never seen before because it's the most aggressive. It's the biggest one, right? So how is that going to impact that housing market? It's not totally clear, but what is clear, there will. be an impact. So I've gone through eight of those. And as you can see, the housing market,

it can be affected upward down by a myriad of factors. And they all put pressure on the supply and demand curve for housing. And they're all currently in play right now in a very big way. And real estate investors, you, I'm talking, I'm speaking to, need to keep your eyes and ears on all of them. But for now, here are the factors that I think pose the most immediate threat to the market. or pose the most potential or significant impact to the market right now. So I'm going to break it up between supply and demand.

So regarding the supply, so while the inventory of homes for sale, those have hit all-time lows, the inventory is at an all-time low, 25% less than last year, there are some signs that more could be coming on the market in the coming weeks in the months ahead. For instance,

the U.S. Census Bureau and Department of Housing and Urban development, hood reported that housing permits continued rising in January, even while tight lumber supplies hindered those housing starts. However, some critical supplies are flat out unavailable as of last week. I mentioned like the flat steel thing. And flat steel, if you don't know, that's needed for support to pour concrete into, to pour the concrete foundations. And flat steel is in very short supply due to a number of factors, stuff like tariffs, the import taxes, and then the supply chain impacts of COVID-19. And there's no real immediate solution in sight for this. So that could be an issue that kind of counterbalances those housing permit reports.

But there's also a seasonal upswing in inventory we typically expect that can increase supply. and speaking of the spring. This is like typically more houses will come on the market during the spring. And considering the economy is in the midst of its biggest attempt or reattempts to open up since the initial pandemic lockdown, this positive seasonal activity, it's more likely than not. For now, it seems. We can already see people, you know, I think Texas, they're there, they're, they're, they're, They were kind of the first big state to open up 100%. They're shooting for full capacity at their baseball games.

The Astros and the Rangers are shooting for full capacity. And when you start seeing all these red states opening up, but then you have Connecticut who just started to open up. So now is your first blue state. So that could be maybe the first real big domino for the economy to really make its move. And so just people are showing an activity of trying to get back to normal. Hopefully they don't force it too much and we don't have a relapse. But that's why I'm saying that people could potentially be putting their house on the market

because we're trying to get back to normal. And normally during the spring, that's what happens. Then further, the mortgage forbearance programs, those aren't going to last forever. Some of those are ending as soon as the end of this month, the end of March. And then a bunch more are going to end three months after that. And so foreclosures are likely to resume, of which will add. to market supply also. And I went into great detail of that.

I think it was the last week or two weeks ago. But overall, we should start seeing some adjustments to supply as soon as maybe, just a few weeks, but mid-year for sure. But to what extent we're going to have to keep watching? But those are kind of the things that could have the most immediate impact on the market. A lot of the other stuff I mentioned might be a long-term changes coming. So that's regarding supply, regarding demand. So mortgage rates are important to keep an eye on.

You know why Jerome Powell last week told the Wall Street Journal that there is no plan to raise interest rates? And he's not going to do it until labor market conditions are consistent with maximum employment and inflation is sustainably at 2%. Now, after he made that statement, ironically, mortgage rates surged. And so it appears Wall Street is taking the world. words of our government, the words of Jerome Powell when it comes to stuff like stimulus and inflation, taking those words with a grain of salt and just moving forward, proceeding with caution. And one of the more operative phrases of Powell's comments was that there is no plan to raise interest rates until labor market conditions are consistent with maximum employment.

And that would be the second thing we want to keep our eye on with regard to demand jobs. I don't know what maximum employment is because just before the pandemic, I believe we were at the lowest unemployment rate ever. I believe. But it wasn't maximum because there were still some people without jobs. So I don't know what maximum unemployment means when he says that. But although unemployment, it is continuing its downward trend,

at least through the official records, and albeit at a significantly lower rate over the last few months, initial job claims are maintaining at 700,000 plus per week. And they've been doing that for quite some time. And I wouldn't be surprised with the new stimulus bill that just came in and they are adding to those weekly unemployment benefits. If we don't see another surge in jobless claims because there are so many people that left the job market, they might be coming back to get theirs.

But we're going to have to watch that. But that 700,000 job claims per week, to give that some context, that's still three times pre-pandemic levels, three times. And still averaging on a weekly basis, this is the bigger context number. On a weekly basis, that's still 100,000 times, 100,000 more people filing their jobless claims. that's 100,000 times greater than the worst week during the 2007 financial crisis. So jobs are an issue. I was just talking to Jason Hartman, who was on our show last week, I guess, and I talked to him, what was it, on a Wednesday web class.

Yeah, so Wednesday web class, and he opened it up for Q&A at the end, and I asked him about it. And he's actually kind of predicting what we call stagflation, which is a scary situation, because that's where we have high inflation and low or excuse me high unemployment. And he was talking about this thing called the misery index. And based off these numbers, I mean, it's not difficult to make that type of prediction. And then Treasury Secretary Janet Yellen issued a statement this past weekend that these high rates of job loss threaten the well-being of workers and their families. They may create economic scars that last well beyond the end of the pandemic. And that's, I guess, to Jason's point.

This is a problem. When it comes to the housing market demand, jobs matter. And right now, there's a big uncertainty and it's not looking real good. But if there was a bright side, and this is kind of what I'm talking about opening up the economy and getting back to normal, CareerBuilder.com reported last week that half of U.S. states show double-digit growth in job listings in February as companies are looking to open up and rehire. So that's good news. So I've kind of been predicting that all along.

Like we've lost all these jobs and some of these jobs are gone forever, but new jobs will get created. And a lot of those jobs are coming back. And, you know, if you were to look at different types of indicators like that, career builder.com says, hey, job listings are in double digit growth. So more job listings. All right. So long term supply and demand is overwhelmingly in your favor.

I want you to walk away with that. the supply and demand thing, although it's kind of crazy right now, it's overwhelmingly in your favor as a real estate investor. But it's the short-term supply and demand makers that I just went through amid a reopening economy are now on the move, warning of basically there's potholes in the road, right? And we're going to have to work around those. And there's likely to be some more potholes further down the road.

And, you know, with real estate investing, being the final frontier where the average person has a legitimate shot at creating wealth. And if wealth is important to you, you now know what to watch for in the coming months. Okay? So I'm watching. I'm going to continue to share my thoughts on what I see

because, you know, everyone deserves a chance at wealth. That's why we're here. That's why this show is here. And besides, if you know something that can help someone else and you keep it to yourself, that's not cool.

So I'm going to keep you posting. All right. So we're not done. If my next guest, if you're looking to protect your assets and protect what you've built, I'd like to introduce you to him. But first, alert, alert. Real estate investors, listen carefully. A closely guarded secret reveals that closely guarded secrets aren't really that closely guarded.

Seriously, go to find motivated sellers ASAP.com to get the inside scoop on how the nation's most successful real estate investors really find their deeply discounted properties. Go to find motivated sellers ASAP.com. Deeper discounts, less secrets. Find motivated sellers ASAP.com. All righty, my guest today is a national leader and asset protection who specializes in the creation of legal frameworks designed to give business owners and investors peace of mind in today's litigious society.

And he creates customized business structures tailored to the investing goals of each individual client, creating entities that maximize tax advantages and protect. protection against litigation. So please help me welcome to the show, Mr. Bob Bloom. Bob, welcome to the epic real estate investing show. Thanks, Matt. Good to be here. Yeah, glad to have you. You know, and then you just shared with me the good news that you've just completed my trust and you're sending over that draft for me to review. So I'm excited about that. I'm excited that, I'm all grown up. And we put some real thought and some real design behind this. And I'm actually really excited about it. And it's already essentially given me a sense of peace, right?

Like, I'm, okay, I don't have to worry about that anymore. Something I've always wanted to do. I had certain stuff in place, but I knew it could be better. And so thank you for that. And I wanted to introduce you to the audience. Yes, pleasure. And maybe they want the same thing because if you value a peaceful night's sleep, this would be a good episode to listen to. Well, it is. And, you know, peace of mind is priceless. It's, what we all work for every day. We're striving to create security for ourselves and our families. And we want that notion. And we don't want a false sense of security. Well, we want to really know that what we've put away is going to be ours and nobody's going to be able to take it away from us.

Yep, exactly. You know, it's almost makes me think of, you know, when I was in the music business for 15 years. And I had a really high income. And I just had, was always on this grind to make more and more and more because I would spend it as fast as I could earn it because that's just what it cost to keep that business going. And when I got into real estate, I mean, I got into real estate initially like, oh, this is going to be my next venture to create that type of money again. But I approached it from an entirely different way of, you know, I'm not going to try and build these mountains of cash.

I want to build these streams of cash that can then indirectly create the mountains for me. And, you know, when I initially escaped the rat race, I wasn't rich. but I was free. And I think I liked, enjoyed that feeling more than I liked having that big, giant bank account of having to worry about it all the time. So I kind of relate that to what we're talking about right now. It's that feeling of peace. It has a much greater value than I think even the stuff, right? So absolutely. That's what it really does. And it's different for everybody. I mean, you can't put a specific dollar figure on it because some people are going to be happy and satisfied with this much and others are going to need that much. But the point is, whatever that

dollar figure is and whatever the structure is that you need to produce that income stream or those dollars, that has to be solid. That has to be secure. It has to be something that nothing can change it. And, you know, somebody coming after you can not change. Because after all, you know, in real estate, you have to deal with third parties. You have to deal with people. And you're dealing with hard assets like a house, you know, that has, can have issues and people can have attitudes. And we want to make sure that we can protect ourselves from all that. Yep, for sure. So great.

I want to talk about some of the nuances of the stuff that you've done for me and then why you did those for me and why someone else might want to do something differently in the different, I guess, circumstances that can come up because every person is a little different. But how long have you been doing this? How long and how did you choose asset protection and tax law with all the different types of laws you could have gone into? Well, I started out as a litigator. I started out wanting to sue people. And I did that for 15 years. I sued people and companies. And one thing changed everything for me.

It was one case where I was actually representing. a company that had done something wrong. They had fired some guys because of their age. That's age discrimination. You can't do that. Now, nobody goes to jail for that. It's not a criminal penalty, but if you get fired because of your age, you can sue and get money damages. And so I was defending this company. They were clearly wrong, but they didn't want to pay. And so these plaintiffs were suing. They had a great case, but we won the case. Because, we were just better lawyers. And normally, you know, when one company sues another, you know,

somebody writes a check and it's over and they go on their way, this time these guys had lost their jobs, lost their income, they had lost their pensions. They were never going to get another job making that kind of money again. And they were devastated. And while we were out there, you know, celebrating, these guys were out in the hall just crying their eyes out with their fans, and what are we going to do? We're going to lose our house. And I saw that and I knew that was wrong.

And I was part of that wrong. And so I decided at that point, I was not going to do litigation anymore. And instead, I took everything I had learned about suing people in companies and now I use it to protect people from lawyers like I used to be. That's awesome. So I do asset protection and have done that for the last 20 years. Very good. That's like hiring an ex-IRS agent to be your accountant. Yes, it is. Right? That's right. That's what you want. You want the person with the insights. So you've been doing this for 20 years. So I guess this kind of start generally speaking.

And who is your typical client? Typical client is somebody who is either getting started in real estate or is already investing in real estate, represent lots of real estate investors all over the board. Some are flippers. Some are only interested in buying rental properties. Some do both. Some are wholesalers. So some do lease options. It's across the board. Great. So that just described the person that's listening. So that's perfect. I didn't know you were that niched down. I didn't know you were exclusively or specifically focused on that person. So that's even better. All right. So let's just, you know, let's just start with the basic question that probably comes to me more times than not. And my answer is always,

it depends. And so I would love for you to share why it, what it depends on. But that question is the entity to operate their business within, what type of entity should someone choose and why? And when should they actually take the step to do that? They should take the step to do that right at the very beginning. I run into a lot of people. Oh, yeah. Let's take someone who is just wanting, to get started in real estate. They haven't even made an offer yet. They're taking a course and they really want to learn how to do this the right way. That's a good approach, by the way. They should be setting up an entity right now. And the reason is when they are ready to make an offer, you don't want to make that offer as Bob Bloom or Matt Therio in your name because that makes you

a party to the contract. And if the other side of the contract thinks you didn't fulfill it, now they have the right to sue you personally for breach of contract. And that can, obviously, now you're involved in a lawsuit. You're going to have to hire a lawyer. You're going to have to pay a $10,000 retainer to the lawyer. You're going to have to be involved and probably have to pay some kind of a settlement just to get yourself out of this mess. And so instead, you want to have an entity. Let's call it an LLC for right now. The LLC makes the offer. Now, if the contract is accepted, now the contract is signed in the name of the LLC. That way, you're not a party to the contract. The LLC is, and by the way, if they want to sue a company with no assets and no money, go right ahead. That's fine. But that shield you from personal

liability. All right? Okay. 100% makes sense. Yes. This is why you're here is because I have actually well, here, to play devil's advocate. So I get it from the asset protection and you got the protection of the corporate veil, so to speak, in the transaction. I've always kind of been of the mindset where, and I see this, and maybe it's because my position as a trainer, where I see a lot of people invest a lot of time and money and getting ready to get ready and then never actually get out into the playing field and do a real estate deal ever.

And now they've spent all this money. So I've always kind of suggested, you know what, go get a deal done. Let's go do that. But you're saying something very differently. Well, and here's part of what holds people back. Some of it is paralysis by analysis. We all know that. But another element of that is fear.

And it's just this kind of free-floating fear of, I don't know what's going to happen. They can't put their finger on it. But having an LLC to shield them, to protect them, helps to reduce the fear and gives them the go-ahead, the okay to get out there and making some offers in real estate. So it gives you the confidence. It gives you, by the way, the professionalism because a seller is going to want to deal with another LLC. They're probably an LLC. And it gives you the confidence and the protection to go ahead and the lack of fear. Okay. Well, good. From this point forward, I will change my answer. So because I see the protection there. Okay. So now we've got the LLP, the LLC, the S corp,

the C corp. We've got all these different things to choose from. And you said LLC many times. Is that the starting point? For real estate investors, really an LLC is a preferred entity over a corporation. And that kind of leads us, if you don't mind Matt, talking about the difference between a corporation and an LLC. Is that right? You're perfect. All right. In terms of taxes, a corporation can only be taxed one of two ways. You've all heard of an S corporation or a C corporation, neither of which is appropriate for owning real estate for various reasons. A limited liability company, on the other hand, can be taxed one of four different ways,

not two. It can be taxed as an S-corp or C-corp, just like a traditional corporation, but it can also be taxed as a sole proprietorship or as a partnership. And those latter two are typically the way that we want to be taxed if we're dealing with real estate. If the LLC owns real estate, we don't want to own it in a C corporation under any circumstances. We probably don't want to own it in an S corporation for a variety of reasons, for tax reasons. But partnership taxation, if we have a multi-member LLC or sole proprietorship, if we only have one person in the LLC, are much, much better from a tax standpoint.

And then from a liability protection standpoint, the difference between an S corporation or a corporation and a limited liability company is that when you own the membership interests of an LLC, those are not transferable. So if you Matt got sued and you own share, call it shares of an LLC, the winner of the lawsuit cannot take those shares from you.

By contrast, if you own a corporation and you own the shares of the corporation and you are sued, the winner of the lawsuit can take the shares of the corporation from you and now you've lost control of the corporation and everything it owns. So if you owned a lot of real estate in that corporation, you've just lost the real estate. Got it. Okay. You said something that just kind of surprised me. You're saying an LLC taxed as a sole proprietorship is better than an LLC taxed as an S corp. Well, under certain circumstances, yes. And these are very general statements, and it's going to all depend.

I mean, that statement could be wrong with the wrong kind of structure. So assuming we got all the pieces in place, then yes, that's a good general statement. But it's got to be looked at very, very carefully and planned very carefully. Got it. And then the next thing that's kind of like, I feel is time-honored wisdom is the rule of thumb is you hold your real estate and an LLC, you flip your real estate and an S-Corp. Would you say that's still accurate? Not necessarily at all. No, no. Because, well, I mean, look, look, flipping is considered active income, earned income. So there are situations where if someone is only flipping, that's their,

that's their business, that's their source of income. And they want to lower what is called self-employment tax, which is the FICA Social Security tax, that can be done with an LLC tax as an S corporation. And there are a lot of technical reasons we can do that. So there may be some advantages if someone is strictly a flipper to have that LLC tax as an S corp. So you have just hit upon one of the nuances that is important to realize that all LLCs are not the same. Certain LLCs when used for this purpose should be structured this way. If it's going to be, the LLC is going to be used for a different purpose, it should be structured a different way.

Got it. So not all LLCs are the same by any means. I see. Okay. So that makes sense. So well, next Wednesday, we're going to get together for a little training, a little workshop. You can go to Wednesday webclass.com. It's next Wednesday at 3 p.m. Pacific.

and you're going to go over those nuances. But let's move on to something a little bit more current. And, you know, with a new administration running the country and lots of talk about changes in the tax code and stuff. So first thing is, has anything like, I think, well, there are there 40 executive orders written in the first nine days or something like that, right? Were any of those impacting taxes yet? Is there anything that we need to be concerned with? Not yet, but there's plenty to be concerned with. Okay.

Well, let's talk about that. But nothing yet, but it's coming up, right? Yeah, I mean, I don't want to get political. So let's just strictly talk about taxes. But, I mean, on the campaign trail, one of the pledges made with this new administration was to eliminate capital gains tax and raise the capital gains tax rate currently at around 20% to the same as ordinary income taxes. And that would really be devastating for real estate investors in many ways.

I mean, you couldn't do a 1031 tax-free exchange at that point unless somehow they grandfathered that. But the notion is if you had long-term capital gains, you can now do a 1031 taxary exchange and defer those capital gains until the sale of that ultimate property, that replacement property. It remains to be seen if we would still be able to do a 1031 and at least defer the ordinary income taxes into into a replacement property. I don't know. It's a complete question mark. Yeah. And there's another legislation that's been proposed by the one of the representatives from Oregon about having an unrealized capital gains tax. Yes. That's scary too. Well, that would be a disaster because, I mean, look, I mean, the current rationale has always been if you realize a gain, now you have money to pay

the tax and the government gets a share of that gain. Now, the gain isn't even realized where are you going to get the money to pay the tax? Exactly. Yeah. That's crazy. I mean, I mean, you know, I tend to to keep an eye on but not try to lose sleep because it's easy to lose sleep over some of these proposals. If they're just a proposed bill, the hope is they're going to go nowhere. Right. You know, as long as we can keep the filibuster. Let's hope. Let's hope. And I'm okay if you get political here.

I have no problem with you expressing an opinion, by the way. I mean, I even love it more when someone disagrees with me. But I have a sense we're already in agreement on a lot of stuff. I think we are. But here's one thing that maybe you can answer this. I don't know if you can, but this kind of like is why you want an attorney on your side is that these types of tax laws that are being proposed, these different types of things that are going to have a significant impact more probably on the people with means than those without.

And I'm just really curious as it seems like, you know, President Biden had more Wall Street-type support than President Trump did. And I'm wondering, like, if these types of laws and regulations are going to have more of an impact on the wealthy, there's got to be some gray area that Wall Street knows about or else they wouldn't be supporting him with such emotion, right? Well, yes and no. I mean, Wall Street has really kind of adopted a lot of the woke culture nonsense, and they've bought into so much of that that I think in a lot of ways they're trying to buy protection. They're trying to side with where they think the wind is blowing, going with the people in power, in the hopes that those people in power will ultimately protect them. from the worst, you know, do some carve-outs, do some exemptions, and give some, and let's face it, Wall Street has a lot of money and a very powerful lobby. And so they're, I'm sure, thinking that whatever comes down the pike is going to apply to everybody else, but not them. Right. I mean, that's not the only way it could be. Like, they're already aware of the area or the loopholes that'll

be carved out for them, right? Sure. Yeah, they've already have it, they already have it written. Trust me. Got it. That's a lot of confidence when someone promises to raise taxes, though. When someone says, I'm coming out your 1031 exchange and I'm thinking about your 401k also. Yeah. That's that really is. Well, it's mind boggling that anybody would vote for that. But there you go.

But there you go. Okay. Speaking of another loophole, let's talk about this. When, how does it work when, or what do you think happened behind the scenes where somebody like President Trump only paid $750 in taxes. And he said, if you don't like it, change the law. So what types of laws are in place that allow someone to do that, like legally and ethically? Well, I mean, there are tax laws that are really quite rational that allow for business losses,

allow for business deductions, allow for very, very significant right-degiate. I mean, he's a real estate developer. He owns a lot of real estate. And I mean, the depreciation in and of itself can be huge. I mean, it's not uncommon for real estate investors, even small real estate investors, to actually make dollar-wise profit and actually show a loss when it comes to taxes. Because of depreciation and other tax benefits. The reality is real estate is the most tax-advantaged asset in the United States. You cannot find any other asset with better tax deductions. And so I'm not really surprised that somebody in real estate in the scope that Trump was, that or is, would pay very little in taxes. Not surprised. It made a lot of sense to me as well.

And you just kind of said where I wanted to confirm, is real estate still like just the greatest tax tax tax tax that the average person has, right? Without question. Without question. Without question, yeah. Yeah. I always like this because, you know, it's, if your goal or your ambition is to do that proverbial escape the rat race thing, right, you can do it in one of two ways or three ways. You can do it by increasing your passive income or you can do it by decreasing your expenses. And the one thing I like about real estate is you can just invest in real estate and you

essentially do both simultaneously without even thinking about it. It just happens. Exactly right. Is that accurate? Yeah, very accurate. I've been saying these things for a long time. I'm just getting confirmation from somebody who actually is an attempt. and not one that pretends to be one on YouTube.

Perfect. Okay, so Wednesday webclass.com. We're going to get together. We're going to do a little bit more of this. If you would like to join us, you can. There's no charge at Wednesday at webclass.com next Wednesday at 3 p.m. Pacific. So speaking of the tax changes and stuff like that, is there anything specifically that has changed for 2021? That wasn't in 2020 that we should be thinking about. Well, not specifically yet.

I mean, the administration is new. They've pushed through their $1.9 trillion COVID relief package is so-called. It's really a slush fund to pay off constituents. But no, I mean, it's just early in the legislative process and they're going to have to pass laws. And the hope is that any laws they pass will be prospective, not retroactive. So hopefully 2021 will still be as we know it, as 2020 was, but no idea until we actually see some legislation. Okay, cool. And yeah, I wasn't even specifically referring to the new administration.

It seems like every year there's something new that happened. And I just wonder if there's anything new that happened. Well, there always is, but nothing significant enough to impact us in real estate. Perfect. All right. So I'm looking forward to getting together with you and probably can share a little bit next Wednesday about what you've done for me and giving me so much peace. And then if anyone that attends that wants the same to do something similar, they can have the opportunity to do that. What else should they expect next Wednesday, Bob?

Well, next Wednesday we're going to be doing a deep dive into entity structuring, taxation, tax structure. We're going to go into a little bit more detail, in fact, quite a bit more detail. We're going to talk about why these entities protect, how they protect. Then we're going to go from just the entity level to an overall structure where we now look at how one entity should relate to another entity and to give you significantly better liability protection than just having one LLC here or one LLC there and they don't necessarily relate to each other. So we'll talk about an overall structure and show some examples of that as well. Great. So you might have already done this when I asked you up front, but specifically who should be there for that training. Anybody who is about to get into real estate, wanting to get into real estate or someone who already is in real estate. Perhaps you have gotten the cart before the horse. I run into a lot of real estate investors who are the opposite of what you just talked about.

They are going great guns. They are in real estate. They're out there buying and they haven't set it up an entity. yet. So what we do a lot of times is we structure people who already have a number of rental properties or they're already flipping, they've got a flipping business, and we will get them structured. So we dramatically reduce their liability. We significantly reduce their tax burden and lower their overall operating costs as well. So and by the way, I might add, reduce the risk of an IRS audit in the mix as well. Fantastic. Yeah, very important.

Yeah, well, that sounds like exactly what you did for me. So I am grateful for that. And I'm looking forward to anyone that just fell into that category, which is probably you listening to the show right now. And, you know, come join us next Wednesday. Go to Wednesday webclass.com at 3 p.m. Pacific Standard Time. You can click the little link that wants to get there, reserve your seat. And we will see you there.

All right, Bob. Thank you very much. And until then, thanks for coming on the show. And let's keep doing this. Let's do this again. You bet, man. Happy to. All right.

Take care. Bye-bye. We'll be right back with the news. When you go to work for your money, does it return the favor? If not, no worries. You do not have a money problem. You merely have an idea problem. We're cashflow savvy.com, and we'd like to share a new idea with you around income

real estate that can transform your financial future and accelerate its arrival. Go to cashflow savvy.com and download a free investors package. Cashflow savvy.com. You do not have a money problem. Merely an idea problem. Cashflow savvy.com. More ideas, less worries. Cashflow savvy.com.

All right, in the news, one year ago today, Americans were confronted with a series of headlines that seemed to be lifted from a sci-fi novel. The NBA was suspended. Tom Hanks announced he had COVID-19. We were still adding the 19 back then, and the World Health Organization declared the novel coronavirus a global pandemic. It's been a long year.

And here are some of the most important numbers across business, the economy, and public health to put things in perspective. So health-wise, nearly 118 million people globally fell ill with the coronavirus. 2.6 million people have died. And the U.S., almost 528,000 people have died due to COVID a year ago to. day, the U.S. death toll was just 38. Big difference. And rest and peace for all of those that fell victim to this terrible thing. Vaccines. More than 320 million vaccine doses have been administered in 118 countries. One in four adults in the U.S. have now received their first vaccine dose per the White House for stimulus, including the latest stimulus bill. D.C. will have spent

more than $5 trillion on emergency aid for Americans over the past year. And for reference, Obama's stimulus package following the Great Recession was $840 billion. Five trillion compared to $840 billion. That's like almost double. And then jobs. Despite adding 379,000 of them last month, the U.S. economy is down 9.5 million jobs from pre-pandemic levels in February. February 2020. Some companies hired like crazy, though.

Amazon was bringing on an average of 1,400 new workers per day last year. Stocks, S&P 500 has climbed more than 50% in a year. And the NASDAQ, which is focused on tech companies, has jumped more than 75%. And stocks that were primed for at-home life soared. For example, Etsy went up 368% while those that weren't still soared. For example, Norwegian Cruise line went up 206%. Then businesses. Loads of new businesses emerged from the pandemic wreckage. 487,57, to be exact, says Yelp.

And that number is only down 14% year over year. Pepe LePue is the latest victim of cancel culture, joining his friends, Dr. Seuss, Mr. Potato Head, and the Muppets, all of which have individually received more mainstream media covers than the sexual misconduct allegations of Governor Cuomo. If you're not following, six women have come out in the last month with sexual misconduct allegations against Cuomo. And the story on ABC, NBC, CBS, and CNN. So my question is, where's Alyssa Milano? Where's Ashley Judd?

Where's the Me Too movement? Is this not a thing anymore? Hey, celebrities. Have we moved on to more important issues like children's toys? You know, as much as I distrust and dislike politics. politicians. Mainstream media, in my opinion, is more at fault for the divide in our country than any politician. I don't think any single person has that type of power unless they have the mainstream media megaphone to shout from and to amplify that message. And after a year

of the hypocrisy and nurturing their narratives, I'd say they're playing in the gray area of downright treason right now. It's damaging. It's terrible for. the country and I think mainstream media needs to be held accountable for it. It'll never happen, but that's my take. Just to be consistent and fair. That's all we want. Just be consistent and fair. That's all the American people want. I hate getting on this soapbox, but gosh, you start talking about this stuff and you get so upset when you start seeing the hypocrisy. And that hypocrisy comes from both sides of the aisle, by the way. This is a bipartisan comment. My point being is the amplification of those messages and being selectively chosen,

which ones get amplified by the mainstream media, that's the real issue. I mean, it's gone as far as just this week. AJ Willingham of CNN wrote an op-ed piece. It's time to cancel this talk of cancel culture, stating that it doesn't even exist. Cancel culture isn't real, he said. It's just the free market doing what's right.

So mainstream media is trying to take every single tool, every single phrase, every single verbiage away from the sane people that are observing. Anyway, all right, moving on. Well, kudos this week to Pierce Morgan, the former co-host of ITV's Good Morning Britain, who took to Twitter Wednesday to address his critics and make a case for free speech.

If you haven't been following, and I haven't been following either, I was just as I was looking for the news to share with you today, came across this, and I've heard about it recently, or briefly, but I didn't know the whole story. But apparently Morgan, Pierce Morgan, abruptly walked off the show set after a tense exchange with a fellow co-host. The network later announced that he severed ties with the show. And then he took to Twitter to show that the fallout did little to change his opinion

on the matter. So I guess he had issues with the Megan Markle interview that Oprah did. And he says, I've had time to reflect on this opinion and I still don't believe her. If you did, okay. Freedom of speech is a hill I'm happy to die on. Thanks for all the love and hate. I'm off to spend more time with my opinions. So love or hate, Pierce Morgan, he is the hero this week.

So I'm not sure if he's popular enough to make this a celebrity trend in standing for freedom, but it's a start. Maybe. I don't know. Small wins. I'll take them. All right. Alaska opened up vaccine eligibility to anyone 16 and older who lives or works in the state,

becoming the first U.S. state to remove eligibility requirements for the vaccine. Boeing last month received more orders for its planes than cancellations for the first time since November 2019. Four pharma companies will use tax breaks to offset the $26 billion settlement there paying for their role in the opioid crisis. And who said big pharma and the government being in Cahoots was a conspiracy theory? online game platform Roblox, a multiplayer video game platform. If you have children, you know exactly what this is. It pops 7.75% in its public debut yesterday in the stock market to close with a market cap of $38 billion. Kids love this thing with an estimated $199 million monthly active users as of January.

My child is one of them, more than half of which are under the age of 13. Yep, that would be my boy. The game is more popular with the use than saying, Yeat for no reason. All right, it's also been minting money. Roblox generated $923.9 million in revenue last year, primarily through the sale of virtual in-game currency called Robux. I'm very familiar with these things because my son twice a week will say,

Daddy, I need you to approve something. And by the way, he pays for all of his own Robux. If you don't know that, it's currency that you use to buy something. stuff inside of this virtual game. If you're buying virtual stuff inside of this virtual game, I was trying to wrap my head around that a few years ago, particularly I don't know if you remember when Kim Kardashian and then came out with that little app where you could go shopping and you could buy virtual stuff,

but you had to put real money in to get the virtual money to buy the virtual stuff. But you couldn't, like, pull it out of the app and then put on the new clothes that you just buy. I thought that was weird. But this weirdly is starting to become more commonplace. We talked about those NFTs last week, I think, or two weeks ago. those non-fundable tokens. So this could be a trend.

It could be sticking. I certainly did well for Roblox. And although it has yet to turn a profit, the company, they expect to rake in between a $1.44 billion and $1.52 billion in 2021 revenue. Oh, I was going to tell you, like I have my son. This is what I'm doing with my son trying to teach him a little of something. Maybe you do this with your kids. So he comes to me and he needs the parent approval to purchase the Robux.

So yes, if they sell it $9.99. a block, I guess. So he always brings me a $10 bill, but I'm charging him a dollar transaction fee. And so he's paying $11 for his $10 robarks. I thought that would teach a lesson, but he's getting very comfortable with it. He gets a lot of money from his grandparents and he takes out the trash around the neighborhood and makes his money that way. And apparently, the transaction fee doesn't bother him.

But anyway, I thought I was going to teach him a lesson, but he's not down for that. Anyway, bottom line, Roblox went public via direct listing, a stiff arm to the traditional IPO process, and its hefty investment banking fees. This method ensures that company's shareholders themselves, not investment banks, capture more of the stock's gains. So good. All right, more good news from Wall Street. The Dow closed above 32,000 points for the first time ever.

It's actually higher even today as I'm recording this, all propelled by new data that showed inflation is under control for now. Been pretty volatile this month, and we'll see where it lands later on today or tomorrow, depending on when you're listening to this. And then let's see searches for fully valid. vaccinated travel jumped 750% and CD guidelines for travel spiked 650% on Tuesday per Google trends. See, people are getting ready.

They're getting ready. They're gearing up to go back to normal. They're starting to think about travel. And it's funny, everyone in California, most of them are searching travel to Las Vegas. And the people in Las Vegas are searching travel to Hawaii. So a bunch of people are going to leave on vacation when a bunch of people come in. But that's what Google Trend says. And then GE's big makeover continues.

It's merging, it's aircraft leasing business with Ireland's air cap and a deal worth over $30 billion. Goldman Sachs pledged $10 billion over 10 years to support black women. Warren Buffett's net worth just hit $100 billion. Congrats for him. Let's celebrate. And then Lego sales boomed 21% last year. And that's the news.

If you found this episode valuable, who else do you know that might too? There's a good chance you know someone who also 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 tell them about Wednesday webclass.com. We'll be there again this Wednesday. I'll take great care of it when they get here. All right, 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. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow.

You didn't know, home, boy, we got the cash flow. This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com.