Epic Real Estate Investing - Why Is The Real Estate Market Booming? | 1201

Episode Date: May 10, 2022

Have you been wondering why is the real estate market booming? A lot of things have happened over the past few years that led to the current rise of the real estate market. Listen to this episode to understand the biggest factors that contributed to this growth and what you can expect to see in the coming years! BUT BEFORE THAT, hear Matt’s words on how to find out all the great reasons why you should try your hand at investing in real estate properties!   Are you ready?   Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Why invest in real estate? You know, with so many options for investing today, that's not an uncommon question. I mean, why not just throw your money in the stock market, set it and forget it? I mean, it feels so much easier, right? Well, I'm going to answer not only the why invest in real estate. If you'd like some help getting started at the end, I'll show you how to get that too. You ready? Let's go.

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. So by the time we're done here, you're going to know what real estate investing really is, why most people should get involved, and how it compares to other investments. Oh, and by the way, if you're looking to get that first deal under your belt, I put together a free training just for you to help you get that first one done, and then how to earn $5,000 a month flipping contracts and properties working as little as one hour a day, and you can access it at mats free training.com.

First thing, what is real estate investing? Because there are so many options to make money in real estate. And I really don't consider them all investing. I mean, you can purchase a single family home, rent it out, collect monthly rent checks while waiting for its value to rise high enough to generate a big profit when you sell. That is the basic form of real estate investing. Or you can purchase a small strip mall and collect monthly rents from business tenants like, you know, hair salons or pizza parlors, convenience stores and other businesses while waiting for its value to appreciate enough to sell it

for a big profit. This I've also put in the category of investing. Or you can go bigger and invest in an apartment building with dozens of units collecting a steady stream of rent checks from your tenants each month. And again, waiting for appreciation to sell it. Again, I'd consider this investing too. Or you can buy low with equity already in place and sell high for a big profit and do that right away. You will most likely recognize this as flipping property. And you can rehab the property before you flip it. In other words, fix and flip. Or you can just clean it up before you flip it. In other words, wholesale it. Or you can just flip the contract before you ever take ownership of the property. In other words, wholesale it. And of all those flip scenarios,

I wouldn't necessarily consider those actual investing. I put these in the category of trading, like day trading stocks or flipping sneakers or baseball cards. In fact, even in the previous examples, as soon as you sell your property, even if you've held it for a while, the investing part is over. You're done. You may have a nice profit in your hand, but then what? Spend it, save it, or reinvest it. Real wealth, it comes as a result of reinvesting.

To a typical financial planner, they're going to tell you to compound your interest, of which over time, a very long time, will grow nicely. But to speed things up, instead of compounding interest, consider compounding interest. consider compounding income-producing assets. That's something that real estate makes readily available to the average person, and it's this that has produced more wealth for more people than anything else. So when you find yourself sitting on a large chunk of equity in your property, instead of selling it, consider refinancing it.

Put some money in your pocket and the rest into your next income-producing property. Collect the monthly income while you wait for the appreciation or force the appreciation and then repeat the process. Besides, when you sell, Uncle Sam has, his handout wanting his share. When you refinance, you can still put a bunch of money in your pocket. And the nice thing about refinance money is Uncle Sam doesn't tax this type. The key is to do your research, to find out which type of real estate investing is the best fit for you. And if those examples sound a little too much like work, work that you don't want to do or don't have the time

to do, you could look at a REIT, a real estate investment trust. Buying into a REIT is one of the easiest ways to invest in real estate because there's someone else that's worrying about the maintenance and the management of the physical property. And this type of real estate investing, it's very similar to investing into a mutual fund. But instead of the fund owning stocks, the fund owns real estate. And you can earn money from a reet in two ways. First, reeds make regular dividend payments to their investors. And second, if the value of the reed increases, meaning the value of the properties that the reed owns increase, you can sell your share for a profit. So that's the basic gist of real estate investing. Buy and hold for income and

appreciation, and typically, the longer you hold on to it, the more you make. Now you know what real estate investing is. Why should you do it? Well, first, it's a tangible asset. You know, when you invest in intangible assets like stocks or bonds, all you've got to show for your investment is a piece of paper. You don't have ownership of anything. And if the stock market crashes, your piece of paper could be worth next to nothing, or actually nothing. When you invest in real estate, you have a tangible asset. Values may increase and decrease throughout the years. There's no There's no guarantee that they won't fall, but tangible assets are worth something. Real estate, it's got utility.

And as long as shelter doesn't go out of fashion, real estate will never be worth zero. Number two, real estate values have always appreciated. Surely values will go up and down. But if you hold on to it long term, the chances are very much in your favor that it will appreciate. As values do tend to fluctuate here and there, sometimes a lot, they may flat out crash like they did in 2008. But over the long term, it will recover. it has always recovered. As of the recording of this, real estate values are at their all-time high and still climbing. You know, any real estate investor that's been in the business for 20 years or more

will always say something to the effect that I wish I would have bought more and sold less. I mean, think about it. What if you bought 20 houses 20 years ago? What would that appreciation look like? You know, and you can also force appreciation by renovating or improving a property. You know, whether you buy an undervalued property and fix it up to sell or you renovate a rental You can increase the property's value faster than natural appreciation occurs, potentially giving you an even greater return on your investment. Number three, you can leverage your equity. You know, most people, they borrow money to invest in real estate.

And as you pay your mortgage balance down and or renovate the property to increase its value, you can leverage the equity to buy more property. The equity in your property, it's the difference between your homes of value and the amount you owe on your mortgage. And then any difference in between there is your profit. That's your equity. You know, via leverage, you can refinance some of that equity out, typically up to 80% of the home's value, giving you some cash to invest in more real estate.

And this is a proven strategy to increase your portfolio and build wealth without having to save another 20 or 30% down for your next property. In most cases, your ability to leverage will speed up your wealth creation by a factor of five. Leverage or borrowing money to purchase, if you will, is the unfair advantage real estate has over most other investments that are available to the average person. Number four, real estate produces passive income. If you invest in a buy and hold property, you can rent it out and earn monthly passive income or more commonly referred to in real estate as cash flow. You know, most traditional investments, they don't provide cash flow. At the very least, they may provide dividends, but you only receive them quarterly or sometimes annually.

And they're typically much smaller in proportion to the amount of money that you've invested. And depending on how you manage your property, real estate can be a passive investment, producing a passive income. You know, if you work with a company like Cashflow Savvy to buy your investment property and fix it up for you, they can match you up with a property management company. This is important if you invest in long-distance real estate. This means you don't have to do much work, and yet you get to enjoy the monthly passive income, the property's appreciation, and number five, tax deductions. When you own investment real estate that you live in, you get very few deductions.

You get some, but very few. You're pretty much limited to deducting your property taxes and mortgage interest in most cases. When you buy and hold real estate, rent it out that someone else will live in, you own a business rather than just an investment. The IRS allows you to take many deductions just like you would if you owned a brick and mortar store. Any expenses that you incur to maintain the property or conduct your business, like buying a laptop, paying your cell phone bill or traveling to the property, can be written off on your taxes. This reduces your tax liability and increases your profits. And what most Americans don't realize is that they can virtually eliminate their tax liability with the price. purchase of just a few investment properties. It's really the last significant tax shelter

available for the average person. You know, contrary to popular belief, these types of tax advantages are not limited to just the rich and the privileged. Just by owning investment property, they can be your benefits to. Number six, real estate can be a great retirement plan. You know, when you invest in real estate, ideally you want to do it for the long term because as time passes, you earn equity and a property via appreciation and the paying down of the debt. And when you reach retirement, you can sell or you can refinance or even take out a reverse mortgage to create your retirement income. Another way is to purchase multiple properties over the years. Rent them out, use the rent to pay off those mortgages. And when it's time to retire, live off the rental

income from your free and clear properties without ever having to tap into your equity. Whether your home is the only real estate that you purchase or you invest in multiple properties, it's important to understand the average homeowner at the age of retirement is 40 times wealthier than the person who doesn't own. real estate. Forty times. This here is reason enough to invest in real estate. But there's more. Number seven, you've got options, many options. Most people will buy and hold real estate as it provides a nice monthly cash flow while the long-term appreciation builds while you sleep. If you use a company like cash flow savvy, they can provide you with all the information that you need to choose a good

income property, the financial projections, and property management if you want your involvement to a minimum. If you are more of a hands-on type person that likes big paydays, you may enjoy fixing and flipping. This involves finding undervalued properties, rehabbing them, and then selling them. Each flip usually happens in 12 months or less, so you don't have a lot of carrying costs there. And then you can turn around and use your flip profits to buy more income property, doing it as many times as you want until you reach your passive income goal. Number eight, you don't need a lot of money to invest in real estate. You know, many people assume that they need a ton of money to buy investment real estate. You don't. When you find the right property with the help of a company like cash flow savvy, you'll have an easy time getting fined

financing if you have a decent credit score. When you can get traditional financing, you need only 20 to 30% of the sales price to put down on the property. So how does real estate compare to other investments? You know, I've been looking at investments for a long time, and I haven't found the perfect one yet. Real estate itself, it's not perfect. They all come with their pros and cons. For example, real estate versus stocks. Real estate, it's less volatile than stocks, whose value can rise or fall more quickly. But real estate is less liquid than stocks. So it's easier to sell your stocks and gain action. to your money than it is in your real estate investments. And then real estate versus bonds. You know, bonds are one of the safer investments.

And you usually don't lose much by investing in them. Their gains, they tend to be much smaller, though. You have the chance to make higher gains by investing in real estate, though your risk of losing money is also higher. But not by much if you do it right. It's a common misconception that real estate is risky, but it's not. As long as you understand the basics, it's pretty difficult to mess it up. You know, real estate, it's relatively safe.

it's the people involved that are risky. People like contractors and property managers. So you want to do as much due diligence on them as you do the property itself, and you should get all of the good stuff that real estate promises. So real estate versus CDs, certificates of deposits. You know, investing in CDs, it's similar to investing in bonds. These are among the safest of investments, and it's rare to lose money when investing in them.

But like bonds, your gains are generally lower than what you might earn when you invest in real estate. In fact, if the interest from your CD, doesn't outpace the rate of inflation, you might actually end up losing over the long run with CDs. Thus, many have dubbed them certificates of disappointment. I know, I'm biased, but I'm being truthful as well. Then there's real estate versus mutual funds. Mutual funds are a long-term investment like real estate. And generally, if you hold on to your mutual fund investments long enough, they'll increase in value, though appreciation is not guaranteed here either. And like with stocks,

it's easier to invest in mutual funds than real estate. Real estate investments, though, can provide a hedge against the economic downturns that can cause mutual fund investments to fall in value. Now, you don't have to go all in on real estate, but please know that the stats show that you really don't stand any sort of chance of financial independence unless you do incorporate real estate somewhere into your financial plan in some capacity. If you'd like some help, I've got some free information to help you get started. Go to cashflow savvy.com, grab the free investor packet there. And if it makes sense, you can pick a time to hop on the phone to discuss the next best move for you.

We'll be back with more right after this. Hit pause on whatever you're listening to and hit play on your next adventure. This fall get double points on every qualified stay. Life's the trip. Make the most of it at Best Western. Visit bestwestern.com for complete terms and conditions. Hope is not a financial strategy. Let's get back to work.

Why is the real estate market booming? Because it is. Like nothing we've ever really seen in our lifetime. Let's take a look and evaluate how long this boom will last. By the time we're done here, you'll know exactly why the real estate market is booming and why we're likely not in a bubble and what you can expect the housing market to do from here. All right, so you may recall that during the pandemic, housing inventory, it dropped as sellers hesitated to put their homes up on the market.

And that glaring lack of housing supply created a boom in home prices. And still today, in most parts of the country, sellers are getting away with charging a premium for properties that just two years ago would have fetched far less. You know, the U.S. housing market was an unlikely beneficiary from the COVID-19 pandemic, but the boom was inevitable anyway, and I'll explain why in just a minute. But, you know, over the last couple of years, home prices have climbed at a record pace. The median price for an existing home reached over $363,000 in June of 2021. That's a 23.4% year-over-year increase.

And then today, just about a year later, it sits at $408,000. That's another 12% year-over-year jump. I mean, we haven't seen such a dramatic acceleration to home price growth like this in decades. The market is slowing down, but we're still very much booming, as opposed to bubbling. You know, the word bubble, it gets thrown around pretty loosely because most just can't believe how much prices have gone up.

You know, a bubble, it tends to be something that's inflated that could burst at any minute. And that's not really the case right now. While speculation can be considered as a contributor to the rising market, the main cause for the housing boom has been low mortgage rates. And at the start of the pandemic in March of 2020, the 30-year fixed rate mortgage sat right around 3.5%. By July of 2021, that number had dropped to 2.9%. The market has been slowing in growth since rates jumped above 5% recently, but still, historically speaking, the rates are still very, very low. Now, supply, this is also an issue.

No, according to the National Association of Realtors, the U.S. has underbuilt its housing needs by at least 5.5 million units over the past 20 years. That's a stark comparison to the previous housing bubble in 2008, when overbuilding was the issue. And with the price of building materials rising, it's becoming more and more cost prohibitive for builders to build new homes, thus represented by home builder confidence falling for the last four consecutive months. So we've got a boost in demand that's due to record low mortgage rates, and we've got a shrinkage of supply, of which is a recipe for rising prices, the fastest pace since the 70s,

to be exact. According to every available measure, median home sales prices in the U.S. are at a record high, and they're just starting to show signs of cooling off, but prices are still on their way up in most parts of the country. And to some, this brings back memories of the real estate debacle of the 2000s, and they wonder if this bull market will end up, like then, in a big, well, good news, if you're already a property owner. Today's strong housing market is radically different, far healthier, and it could chug along for many more years. The U.S. housing market is still in somewhat of a frenzy as pandemic-induced demand and

maturing millennials put buying pressure on a long-standing housing shortage. The press has noted that more than 6 million homes may be sold this year, more than any time since 2006. For those familiar with real estate busts, this may be an ominous sign. And understandably, a roughly three-year housing boom ended in 2008 as real estate prices plummeted, ultimately sparking the global economic meltdown known as the Great Recession. As much as $16 trillion of home value got completely wiped out. Economists argue that this time is different, though.

And although this time is different, that those can be very dangerous words to say, I tend to agree, you know, tight supply and rising demand as opposed to lax lending standards are driving the current boom. So while the housing market in 2006 was a bubble waiting to pop, this one appears it will be propped up by the entry of a new generation of buyers into the market. With all that said, if you're still of the feeling that we're more likely in a bubble than we are going to continue to boom, consider this. In large part, the previous housing crash was driven by an unprecedented wave of subprime lending, which was itself spurred by a demand for mortgages among investors. Exceptionally risky mortgages with high, often variable interest rates were offered to borrowers with poor credit histories.

And then by 2006, 20% of U.S. mortgages were subprime. When home prices went down, many of these borrowers defaulted, triggering a systemic collapse. Well, economists aren't concerned about a repeat of the previous housing crisis, partly because the fundamentals of mortgage lending are much stronger this time around. Banks over the last decade have likely underwritten the best book of business that they ever have. So today, subprime lending is much less common, thanks in part to federal regulation that has set stricter standards. You know, between 2009 and 2014, subprime mortgages only made up around 1% of all U.S. mortgage originations. Translation, 99% of all mortgages today have been given to prime borrowers.

And today's loan products and underwriting guidelines no longer allow for borrowers to take as much risk. There's a lot of skid in the game and the ability to repay is a large, consideration for banks. If the market does crash, it won't be the bank's fault this time, nor will it be artificial demand. This time, the demand for real estate is real. The number of Americans who can reasonably afford a home and are now looking to buy one is rising even while inventory remains stagnant. The pandemic contributed to this in three ways. One, the number of new homes coming onto the market slowed as existing homeowners decided not to sell. Number two, emergency federal protection allowed people who had lost income to pause mortgage payments for a time.

And number three, the supply chain. Supply chain and labor shortages left builders scrambling to get new houses up fast enough to meet the demand. All of this indicates that high prices reflect real demand by home buyers, not just a speculative bubble. More Americans just want new homes and are equipped to properly finance them at a time when few are available. And then there's the demographic shift. What will have a greater impact on the future of the housing market than anything that I've shared with you up to this point, a factor that most are not talking about yet.

Now, this demographic shift that almost no one is talking about is that millennials are finally buying homes. And this is a really big deal because a big part of the demand equation is that Americans between the ages of 25 and 40 are finally buying homes and numbers mirroring that of previous generations. The Great Recession of 2008 and 2009 had delayed home buying. dreams for many millennials who entered a difficult job market and lost the ability to build savings early. Because many couldn't afford to buy homes, those homes, they weren't built. Builders look at these types of things before they drive a single nail or even pull a preliminary permit. There were probably six million houses between 2008 and 2013 that should have been built, but weren't because millennials weren't buying. So that brings us to today, where there are millions of homebuyers who can't

find houses because there are dending. Even the homeownership remains out of reach for many millennials, they now represent the largest segment of Americans entering the home buying market. Millennials are now earning more money and starting families later than their predecessors, but they're finally here and they're looking for houses. All of this means that what looks like an exceptionally active housing market is actually just the beginning of a general shift. While this demand was always coming, the shifting incentives of the pandemic, as well as low interest rates, making more financing available, just sped things up. So what will happen to U.S. home prices from here? You know, just a few months ago, most experts were predicting that home prices, as well as the rate of

home buying, would not slow down or return to normal anytime soon. And it's still being projected that 4 million mortgages will be originated this year. And there will be an annual increase in home prices of between 5 and 13% over the next 3 years. This should pose a challenge for those trying to enter the home buying market for the first time. However, with aggressive inflation, the struggling economy, rising interest rates, and tightening monetary policy, these big economic variables could turn last year's predictions on their heads. But we still love to make predictions, and with these latest economic developments, I've revised five of mine for you.

Prediction number one, mortgage interest rates will rise. That's not really a prediction, right? Because we've already seen rates rise in the early months of this year, and there's a consensus that they will continue to do so. rather aggressively. Prediction two, expect less intense competition. You know, if you're in the market for home, this year should mean less competition. The combination of rising interest rates and rising house prices will push some would-be buyers out of the market, which may result in reduced competition after the summer buying season is over. But it won't kill competition, likely just the intensity of it.

Prediction number three, home price appreciation will slow. But just how much will it slow is up for debate. You know, recently released research from Zillow shows that annual home growth is expected to accelerate through spring to 17.3% by the end of the year. Fannie Mae says home prices will climb 11.2% throughout this year, followed by a more modest increase in 2023. But the National Association of Realtors, which surveyed more than 20 top economic and housing experts, predicts that housing prices are expected to climb just 5.7% through the end of 2022, of which this more modest prediction would still mean properties are still appreciating at almost double the normal annual rate. I think you can expect to see the greatest levels of home price appreciation in rural and

suburban markets where individuals can benefit from a stronger resurgent economy. And another thing to consider, higher interest rates will force buyers to shop at lower price ranges so they can afford the monthly payments. So I see demand and appreciation to increase for your smaller homes, of which will, over time, indirectly cause and accelerate gentrification in your lower-income neighborhoods. Investors with the ability to withstand whatever the economy may throw at them in the short term could benefit greatly long-term by purchasing these smaller properties in lower-income areas. Prediction number four, priceier homes will be easier to get. Based on the previous prediction, we're already seeing a homes priced at $500,000 and below disappearing fast,

while supply at higher prices has risen. There are more properties for sale at the upper end now, homes priced above $500,000 compared to a year ago, which should lead to less hurried decisions by some home buyers. So if you have the means, finding your dream home will likely be less stressful than it has been in the last couple of years. And then prediction number five, we're going to see more foreclosures. Now that mortgage forbearance programs have come to an end, we're likely to see a normal foreclosure market resume. You know, most homeowners that are flush with equity and can likely sell on the open market for full retail, if times get tough. But as the economy moves forward with great uncertainty, especially with the pressure inflation is putting on the average American, life will start to get back to our pre-pandemic

conditions where shit happens to people. Face it, life comes along and kicks us all in the teeth every once in a while. And when it's something that only a large amount of money will cure, more and more people will turn to their properties for financial relief. And that could mean selling quickly at a discount. Or simply walking away and letting the bank take it back. 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, a met Tario. Living the dream. Yeah, yeah, we got the cash flow. You didn't know home boy, we got the cash flow. Okay, only 10 more. presents to wrap. You're almost at the finish line. But first, there, the last one. Enjoy a Coca-Cola

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