Rich Habits Podcast - Q&A: Stuck in a Real Estate Investment, 3X Leverage ETFs, & HELOCs to Invest

Starting point is 00:00:00 Hey everyone and welcome back to the Rich Habits podcast, a top five business podcast on Spotify at the moment, which we're super excited about. Thanks for listening. This episode is our question and answer edition, which means we answer your questions off the cuff. Bing, bam, boom, you get it straight from Robert Nye. I love it. And always remember to ask those questions through email, Instagram, wherever you can find us. We want your questions.

Starting point is 00:00:28 We love these episodes. breaking down all your crazy ideas, all your concepts to help make sure you guys are all headed in the right direction financially. And speaking of email, Robert, an email just went out to 41,926 people via our email newsletter, Rich Habits newsletter. And it is a wonderful edition to your weekly read. It's about a five to seven minute read. And I'm telling you guys, we are picture first. We know that no one wants to have to read a dictionary. worth of words every single morning. So we've got some really cool charts, some cool illustrations, and cool data for you to

Starting point is 00:01:05 check out, learn more about, and get both Robert and my own perspective on that data. It's a really cool newsletter. Go check it out in the link in the description below or just type into Google Rich Habits newsletter. It should pop right up. If you trade options, you've got to ask yourself, why wouldn't you choose an options trading platform that puts investors first? At public.com, there are no commissions or per contract fees.

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Starting point is 00:01:59 earn a rebate on every contract traded. Again, that is public.com. This was paid for by public investing. Options are not suitable for all investors and carry significant risk. Read the full disclosures in the podcast description below. All right. Our first question comes from Tom S. Tom says, Hey guys, I love the show. Keep up the great work. My question's for Austin. When he's doing these investment calculations, what are his assumptions? Okay, so Tom is probably alluding to whenever Robert and I say things like, if you invest $200 a month or $4,000 a year or, you know, whatever that looks like, here's how much you would have at the end of so many years. So essentially what I'm doing and Robert and I, we've built this awesome sort of investment projection calculator that we will

Starting point is 00:02:41 be releasing to our community members. Stay tuned for that opportunity. So big, big news coming up on that. But we built a really cool calculator that essentially makes it super easy for you to understand how much do I have to invest per month to achieve this much in my account, right? If I'm investing to $3, $500 a month, what's that going to turn into over time? And what are the assumptions needed that allow that to come true? So, Tom, to answer your question when I'm doing these things, I always say between 11 and 12%. If you want to bring it down to 10, 9 or 8%, I get that. But I would argue that if you have the ETFs we talk about, VGT, QQQ, Mote, AIQ, things of that nature,

Starting point is 00:03:21 you're going to get above that 8, 9% range pretty consistently. So that's my perspective on that. And, you know, Robert, as Tom thinks about sort of pulling together these assumptions, is there anything else you should know? Did I miss anything? No, I don't think so. You know, I get where Tom's coming from. If the average person thinks more in the line of 6 to 8%,

Starting point is 00:03:42 which is what you hear tossed around a lot. But when you really look at the math over the last 40 or 50 years, you know, we see a lot of 10, 11, 12% returns. year over year. That's why we always say when in doubt, zoom out, is to really look at it from a longer term perspective to get to those 11% assumptions. So that's where I think it's coming from. So I don't think there's anything to add here. It's just all about what Tom believes long term in the math, how it lines up. And you can make your own assumptions from there. And Robert, I'm sure you remember this, but for the people who might not be subscribed to the newsletter, we actually

Starting point is 00:04:18 included a really cool graphic that shows you since 1926, so about 100 years of performance on the S&P 500, how has it performed every single year? And 52 times, right? Like 50% of the time over the last 100 years, right, 52 separate years, over that period of time, the S&P 500 returned 12% or higher. And 37 of those 52 years, the S&P 500 returned higher than 20%? So like we're investing for upside. We're allocating capital in an aggressive manner to see those 12, 15, 20, 25% returns. I mean QQQ was up 40, 55% last year, Robert, right? That's how we're investing.

Starting point is 00:05:03 So if you want to assume a 6, 8, 10% return, like be our guest, but we're going to allocate capital in a way that allows us to see 10, 12, maybe 15%. Yeah. And I think that really comes down to, like you said, having a more aggressive outlook and believing in, you know, the U.S. stock market. Because at the end of the day, sure, you can get 6% pretty consistently if you want a target date fund or a 401k. But to me, you're just leaving too much upside on the table by shooting for those returns. And that's why we always want to see people having that base of index funds where you're going to see those 10, 12% returns a year as a whole.

Starting point is 00:05:42 And I just think it's better that way. And it just, but it comes down to your risk tolerance levels. and what your overall expectations and, you know, how you build your mouse trap. Everyone is different. Our next question comes from Josh S. Josh said, I just graduated college and I'm investing $50 to $100 per month toward my Roth IRA into the ETFs you all talk about. However, I want to buy some cryptocurrency. Should I invest that money instead into Bitcoin and other cryptos? Robert, I'll let you kick this one off.

Starting point is 00:06:12 Yeah, Josh, I think what I would do if I had $100 per month, right now, I would probably split it down the middle. I'd do $50 a month into the ETFs through your Roth IRA and I would do the other $50 a month into a public dot com account and I would split that between Bitcoin and Ethereum. But the next step of this, if you just graduated college, we have limited information, I'd go get a side hustle because right now you've probably got plenty of time on nights and weekends. I'd go get a second job, get a side hustle, making $2, 3, $500, maybe $1,000 more a month. And I would put all of that same way between the Roth and the public.com account to really

Starting point is 00:06:54 accelerate your investments starting early. So I would take a different approach, kind of coming back to the idea of like building your base before you begin to diversify too much away from the index funds. I would instead, Josh, just add Ibit, I-B-B-I-T to your Roth IRA and add it as one of the ETFs you're investing into, right? So if you're buying V-O-O-QQQ, VGT, V-G-T, V-I-MOT, now you're also buying some I-BIT. So maybe 5-10, 15% of your Roth IRA is invested into Bitcoin. So you get to see that upside, which is really cool, without sort of deviating too far away from the idea of like building your base before you diversify, you know, into single stocks,

Starting point is 00:07:34 crypto, real estate, things like that. I like it. I like it. Yeah. The only reason, and I agree with that is I want to make sure, especially everyone that has, youth on their side that they're taking advantage of these market sectors right now like AI humanoid robotics nuclear crypto where we're really getting heavily invested in them and understanding the opportunities there because I just think that generational wealth can be made in the next few years with all of these new technologies that are really taking over the markets and it's not just generational wealth Robert from the investing perspective but it's generational wealth from the entrepreneur, small business, solopreneur perspective, right? I mean, think about it.

Starting point is 00:08:18 What if Josh took your advice, got a side hustle, building websites for mom and pop shops all around his city, uses AI to do it. And now he's selling these websites for $1,000 a pop. I was doing this with dog groomers in Knoxville, Tennessee, right? It works. You're selling for $1,000. You do like a little monthly retainer to keep the website up the date. You sell now because it's, you know, AI building these websites, you're able to sell four, seven, ten, twelve of them a month. Well, congrats, dude. You're now making $50, $100,000, $200,000 a year by this side hustle. And that is how you build generational wealth just completely on the side using the technologies that Robert and I are talking about. So, you know, when we talk about like these revolutionary things, I don't want people to make the mistake of,

Starting point is 00:09:01 I have to invest in that thing. That's the only way I'm going to make money. You can also leverage that thing as a way to make your active income become more. efficient, if that makes sense. I agree totally. I love it. So our next question comes from David G. David says in last week's Q&A episode, your very last question was from a woman named Nancy, and she stated that she was going to use Section 121 to defer her capital gains on the sale of her home. However, she had an investment property, not a primary residence, which means she just can't do that. Am I missing something here? Robert? Yeah, David, you are correct. I must have missed that in last week's episode, the part about it being an investment property and not her primary home. So you are

Starting point is 00:09:45 correct. For the Section 121 exclusion, it has to be a primary home and you have to have lived there for at least two to five years. So that's a good catch. Either way, the Section 121 is a great exemption. I just didn't catch the part where it was an investment property or not her primary home. So break this down, right? Let's say I wanted to sell my house this year. Like what is a Section 121? What does that mean? Yeah, basically, Austin, it is an exclusion in the tax code where you can write off up to $250,000 of gains for an individual or $500,000 for a married couple on that property. So it's a really nice exclusion that a lot of people don't talk about. So that was a good catch on David's part. But yeah, that's basically it. Very simple. It's just another way to use the tax law in your

Starting point is 00:10:35 favor with these properties. So you're saying if I had a wife and we sold our house, for a half a million dollar profit. I just don't pay taxes on that. That's pretty cool. That's correct. That's what the exclusion would prevent is you from paying taxes on those capital gains that you earned on the sale. Robert,

Starting point is 00:10:51 I need to study up on the tax code. I did not know that. We all do. I learn every single freaking month something new about the tax code. One of my favorite guys right now, and I'm not sure if you met him yet or not, but Carlton is really, really good. Yeah, Carlton Dennis. He's really good with this stuff.

Starting point is 00:11:08 I had him on my private line. in the money mindset like a month ago and we talked about some stuff with 1031 exchanges and some of these other strategies what's the 1031 exchange oh when you sell a property you have X amount of time 180 days to buy another property to be able to offset your capital gains on the property that you sold and then if you were to buy a property let's say you were to sell a million dollar property and you were to only buy a 600,000 dollar property say you were downsizing you only would then pay your capital gains on the difference. So another strategy that is just really, really great for people that are in the real estate investing world. I love it. Our next question comes from Jeff. Jeff says,

Starting point is 00:11:51 I'm 39 years old with 200,000 in my 457B retirement account and I'm looking to switch careers out of law enforcement within the next few years. When I'm fully done, I will be collecting a pension of about $10,000 a month. I have $350,000 of equity in my home and I'm wondering if it's a good idea to take out a HELOC against that equity, use that money to then invest into high income slash dividend funds like SPYI and QQQI. Robert, what do you think about this question from Jeff?

Starting point is 00:12:22 No, no, no, Jeff. If the average HELOC right now, let's say is 7.5% to 8%, and I love helocks for certain things, but this isn't one of them. Because if you're going to borrow at 8% and hope to make 12, then you do have,

Starting point is 00:12:39 have some positive arbitrage with your money, but I think it's just too skinny of a deal to take that risk because you do have this equity in the home, which is fantastic. But I don't know if you should be borrowing against it to invest in something else that may or may not have a positive outcome for you because you are adding that additional payment for the HELOC that will be added on to your mortgage every month. So I just don't think it's a good idea. I don't think there is enough wiggle room in that equation to make it make sense. I would agree. And, you know, Jeff, you're about to be making 10,000 a month from a pension, obviously a couple years away. Like, that's your passive income that you're looking for. And even if you wanted to generate more passive income within your portfolio,

Starting point is 00:13:26 just start taking this extra 10,000 that you'll be making and dump that into SPYI or QQQQI or some of these other dividend income focused funds, allowing you then to generate, you know, call it 10, 12, $15,000 a year, then snowball into tens, if not hundreds of thousands of dollars a year and passive income over time. So I agree with Robert 100%, man. I would not want to go into debt, especially call it 7.5, 8 and a half, 9% just to generate, call it 12, 14% on that money. It sounds fun and sexy and cool and like free money, but on the same token, too, I feel like there's just too much uncertainty as it relates to the HELOC, as it relates to maybe the stock market,

Starting point is 00:14:05 right? There's just a lot of things here that you're kind of playing with that it's not set in stone. And so, Jeff, you know, if the Federal Reserve raises interest rates or something crazy happens that we're not predicting, right, Black Swan events, right, they are a thing. And your HELOC interest rate goes up to 10, 12, 15%. I'm not saying that's going to happen. That's pretty crazy. But, you know, you never know. You'd be SOL. So, Jeff, I love where your heads at. I love the idea of, you know, arbitrage, trying to figure out where the optimization can come from. But I'm not sure this is that opportunity. I agree. Are you paying too much to trade options? If you're not trading on public.com, the answer is yes. Public is the only platform where you can earn a rebate on every option contract traded. And that's in addition to no commissions or per contract fees. There's no one else out there paying trading rebates so you won't find a better deal. Bottom line, if you're paying more than $0 to place an options trade, then you're paying too much. So switch to public and start getting rebates on every.

Starting point is 00:15:03 single contract traded only at public.com paid for by public investing options not suitable for all investors and carry significant risk full disclosures in podcast description now before we go to our next question robert you know you mentioned that you like the he lock what are some examples that someone would use a he lock for so i guess you know it really depends for me if someone said i've got 350 000 in equity in my house. And I've got an opportunity to buy a four unit, you know, quadplex from my uncle, or it's an off market deal. And I can buy it and do all the renovations for 100K, create X amount of cash flow. And the average capital appreciation in my market is 12% a year, 9% a year, then I feel you have two or three ways to get more positive arbitrage out of the money

Starting point is 00:16:04 from the he lock than just taking it from a heloc at 8% and hoping to make 10 or 12 in the markets with VOO or QQ. So that's one way. Another way might be, I have 350K in equity in my home. This area is booming, but my home hasn't been renovated in 20 years. So what I want to do is take the helac out, take $100,000, upgrade my flooring, renovate my kitchen, and redo my deck. And by spending that $100,000, I believe, based on the comps, I can get $250,000 or $300,000 more in the sale of the property. Because then again, I have a broader positive arbitrage for my money in those scenarios. That's what I like. And so essentially, the bottom line here that I just heard from me, Robert, is only,

Starting point is 00:16:57 only do a he lock, leverage your equity only if you have control of the outcome. You have the ability to completely revamp your house with new hardwood floors, like whatever that is. You have the ability to renovate a multi-unit family something. You have the ability to control the outcome as an educated and sophisticated investor. You know what moves to make. You're not relying on the stock market to go up hopefully, right? Or, you know, outside things. you are taking control of your money and you're doing things with your money that you know will cause you to have an outsized return on your original investment.

Starting point is 00:17:34 So maybe even like buying a business would be a idea. Well, and you said it perfectly. The word, the operative word here and your response is outsized. What you don't want to do is put yourself in a scenario and a lot of people do. And I love their thought process, but it's just ill-fated if you can't further exploit and understand the numbers. Is somebody goes and gets a he lock, let's say it's seven points. 7, 5% on the heloc. And then they go and they do something with the money where, let's say they go buy a property

Starting point is 00:18:04 that may not be the right property for use of this helot. And then what happens if they buy at the top of the market? And then a year later, the property goes down in value. And then all of a sudden they're upside down on the property and they still owe the helot. So the cash portion that makes it worth it to be cash flow positive on the helock and the use of that money isn't there. Then they could be put in a situation where they're upside down, not only on the payment, but then on the equity, having negative equity in the property. So that's why I think

Starting point is 00:18:35 the key word to this response is outsized. I want to have a greater potential for a higher return or multiple ways to get returns on that money. I love it. Okay, very cool. Everyone, I hope you're taking notes because I certainly am. Our next question is coming from John W. John says I'm saving to go to chiropractor school and I've got $1,000. I know I want to be investing while I'm young, so where should this money actually go? Should it go to pay for school or should I use it to invest to my Roth IRA? John, what a great question. You know, Robert and I hosted an Instagram live stream recently where someone asked about paying down their student loans or investing $50, $200, $200 a month in a Roth IRA. Here's what we told them. I gave them the wonderful example of my girlfriend.

Starting point is 00:19:18 She is 25 years old. She's got $35,000, $37,000 of student loans. and she also has 15,000 in a Roth IRA, 10,000 in a high-yield savings account, and her money is working for her knowing that she's younger, right? She right now, I think, is squirreling away between $500 to $1,500 a month, just depending on what she has discretionary income on, right? Maybe she goes on a trip that month or whatever else, but that's kind of how much extra she has per month to, like, allocate. Dave Ramsey would tell you to allocate that money to the student loans,

Starting point is 00:19:50 which would then cause her to have three years to pay off. those student loans, right? It's called $1,000 a month on average. 37,000, 1,000 a month. That's, you know, three years of paying down the student loans. So what we're saying and said is like, well, you can pay down the student loans a little bit. Like, that's fine. But that's $36,000 that's not working for you into your future, right? We want to set ourselves up in a place where our money is always working for us and compounding over time versus working against us by being parked, paying off a simple interest loan, right? And so just, just, by, and I'll pull up our calculator here, Robert, to show people, just by having this $15,000

Starting point is 00:20:28 invested in her Roth IRA at 25 years old, if she doesn't touch it, she doesn't add any more money to it. And she gets a return of 11 to 12% per year on average of the next 40 years. That is $1.7 million in retirement by just making this one move at 25. So, John, to answer your question, do you want to put this money to pay for school or do you want to have this money working for you in retirement. I would argue to park it in the Roth IRA, put it in the ETFs we talk about, and take out a student loan at the reasonable 5, 6, 7%. Maybe you work an extra job or two to save up for chiropractor school. I have no idea how much that costs. But just make sure that whatever you pay for the school does not equate to more than your first year's salary. That's kind of

Starting point is 00:21:12 the big rule of thumb I think people forget about Robert is like, I mean, I'm just listening to a podcast where someone was complaining that they had $300,000 of student loans to be an engineer, which I'm like, okay, so they make like 100, 150K, they make 55 grand per year. And they have 300,000 of student loans. Their monthly payment is $3,500. That's their entire salary, right? So it doesn't work. So, John, if you're going to pay $20,000, $30,000 to be a chiropractor, nice,

Starting point is 00:21:38 because you can easily make that in your first year salary, right? But if you're going to pay $150, $250, $350,000 to be a chiropractor, my guy, you should not do that. Not a good idea. Go figure out something else because I can tell you a bunch of ideas on what they're to do with that kind of money that does not include going to chiropractor school in the u.s economy if they wanted to fix all of this really quickly it's simple make all of these colleges that have multi-billion dollar endowments make a bachelor's degree 10,000 dollars and make the college figure it out because at the end of the day when you put people through school whether it's a bachelor's or master's degree

Starting point is 00:22:12 and they get out and they have 100,000 200,000, 300,000 dollars in debts and growing because of the interest They have no chance of putting money into the economy in a meaningful way for many, many years. I read a stat the other day that the average plumber right now in 2024 has a higher net worth than the average doctor until they reach 44 years old because of the fact that the doctor has so much debt for decades that they can't get ahead. And this is a really scary thing. And it's only getting worse. Yeah, Harvard's endowment, $50 billion. Yeah. I don't get it.

Starting point is 00:22:53 Yeah, I'm right there with you though, man. I mean, it all kind of comes back to, you know, this idea of paying for school, right, getting an education in something that's going to make you a lot of money in the future. Doctor, lawyer, you know, finance, be my guest. You're going to make so much money, you'll be fine. Whereas communications, left-handed puppetry, right? Underwater basket weaving. There are so many, like, degrees out there that I think, you know, and a lot of, of folks are graduating right now, which means they're going to college for the first time,

Starting point is 00:23:22 where they're thinking about, you know, they just graduated high school. They're figuring out their lives. If the Rich Habits podcast can teach you anything, it's that if you're going to go into crazy amounts of student loan debt, that you better have a plan to pay them off with the hundreds of thousands of dollars and expected salary that you're going to be making, doctor, lawyer, finance, right? We are not talking about spending $140,000 on an English major to go be an English teacher making $42,000 a year. So our next question comes from Eric F. Eric says, my name's Eric, I'm 26, and I live in Canada. I love your podcast, even though I have to put in the work to translate a lot of what you teach into the terms that are specific to the Canadian

Starting point is 00:23:58 economy. Robert Nostin, you two are the most bullish influencers when it comes to the NASDAQ and the S&P 500 that I've ever encountered. So here's my question. I found a couple of ETFs that provide a 2x volatility on these indices. For example, if the S&P 500 goes up 10% per year, the ETFs, the ETF that I would buy would go up by 20%. And if it goes down by 10%, it would go down by 20%. So it's obviously a double on the upside and a double on the downside. So here's my question. If we both think that the S&P 500 is going to continue to go up over time, why don't we own ETFs like these? What are your thoughts? Generally, I would love it if you could do an entire episode exploring option levered covered call ETFs and how they can be used to effectively supplement a portfolio. But I guess we'll just start

Starting point is 00:24:48 with a question. Really, really cool question, Eric. You know, I hadn't thought about this Robert. Obviously, I knew of, right? I knew that there were like these, you know, 2x, 3x, 5x leveraged ETFs and essentially what's happening here for the people who are like, what are these guys talking about? It's very simple. Let's say that I had $10,000 in cash. And I took that $10,000 to buy the S&P 500 on January 1st of this year. And the S&P 500 goes up 10%. That's cool. I made $1,000. with my $10,000 investment, right at 10% return. Now let's say I had my $10,000 in cash and I took out $10,000 in debt. So I had $20,000 total.

Starting point is 00:25:30 Now let's say I took that $20,000 invested it to the S&P and it went up 10%. Well, I just made $2,000 because I had $20,000 invested versus just $10,000 with my cash, right? I took on debt, leverage. That's what that was. So my return was double. And the only interest, quote unquote, I have to spend on that debt to borrow it is the expense ratio of these ETFs, which are relatively low around 1%. So the answer here is like, why not add that to a well-diversified portfolio? I think that's a great idea, Robert.

Starting point is 00:26:00 I really do. I am hyper bullish on the S&P 500 and the NASDAQ. And, you know, I think what's really important to note here is, and people get scared. We talked about this on the Instagram live, Robert, people get scared when we see all-time highs. Oh my gosh, the market's at all-time highs. come falling down. Beware, it's coming down, be scared, sell everything, you know, park it and gold and Bitcoin or whatever, right? Everyone gets scared. When in actuality, there's nothing bearish about all-time highs. It's just not a bearish thing. So I like this idea, Robert. Maybe you should

Starting point is 00:26:30 share a couple of the E-T-ups that we found while we were doing some research on this. Yeah, I mean, if you look at U-Pro U-P-R-O, I think that would be my favorite. There's also S-S-O, but U-Pro is awesome because if you think about it, we've discussed many times recently about where we think the markets are going, let's say, for the next 18 months. And if we're still this bullish, then why not, you know, double down and 2x our returns on the S&P-500 by using a fund like U-Pro? So I really like this strategy and, you know, this 2X return is kind of a cool kind of platform and investment strategy just because if you believe it's going to go up, you might as well double down on it. And I really like it. So Upro would be my first choice. Yeah, I think what's important to note here too is like I'm talking about adding this into my retirement accounts and my brokerage accounts, which are already well diversified. So, you know, if I get a UPRO or an SSO and I add this, you know,

Starting point is 00:27:30 those to my diversified portfolios, they'll make up three, six, maybe eight percent of the total portfolio pie, which means that instead of putting that in the S&P 500, it'll now see two or three X returns up or down and what that looked like, right? So, you know, I'm really getting, you know, 16% waiting, 24% waiting, which is definitely a lot, right? So just be careful when you're adding this to your portfolio. You have to think about to what that 2x or 3x leverage might look like. But, you know, generally speaking, I don't think this is a bad idea, you know, adding some of this flavor, some spice, right, to the well-diversified portfolio. I'm here for it. Eric, thanks for the question, and I'll definitely be doing this myself. Now, our last question, Robert, comes from

Starting point is 00:28:10 Hainan A. Hainan says, hey there, love the podcast. I never miss an episode and I've learned so much from the podcast over the last couple years. Thanks, everyone. I'm just enjoying myself. What a great time. Here's my question. We bought our third rental property in 2022 and it was a bad investment. We overpaid because that was what the market was like at the time, and we just didn't know any better. Our mortgage right now is $3,300. We rented it out for $2,900 when we moved out of it in 2023, but the mortgage has gone up to $3,600 because we had an adjustable rate mortgage. It will not rent for that. And if we sell it now, we will definitely be taking a loss.

Starting point is 00:28:48 We paid $600,000 for the property, and just now the way the market's going, it's definitely not going to praise it that. With fees and everything else, just to make our money back, we will need to sell it for at least $640,000. What should we do? Do we rent it for the maximum rent and just pay the loss every month? Or do we take the loss and sell it and learn from our mistakes? We have no idea what to do, and it sounds like a loss either way. This house has also been such a headache.

Starting point is 00:29:12 Oh, Robert, I hate reading questions like this, right? Because I just, I feel for these people. I mean, who doesn't want to own real estate? It's everyone's dream, but sometimes it's a nightmare. Yeah, this is one of those that highly illustrates to be careful what you wish for. You know, you see all of the real estate influencers out there telling you that more millionaires are made buying real estate. It's the best investment you can make, et cetera, et cetera. But, you know, this is a very common situation where people buy at the top of the market.

Starting point is 00:29:42 The value of the house does not go up how they anticipate. And then also, when you have an adjustable rate mortgage, you can have this happen as well to where the mortgage payment goes up substantially because of this adjustable rate. So this is a very tough situation. You could look at it from one perspective that if right now you were going to lose $40,000 to $50,000, let's say, maybe you hold on to it for another year, assuming a 10% capital appreciation, depending on what market it's in, to where if you hold it for that other year, that would make up for the $40,000 you would lose immediately.

Starting point is 00:30:18 but you also have to look at the carry cost of losing $700, $800 a month on the property over the course of that year. So you really are in a tough, tough situation. And without knowing more, I don't know the best strategy. I just know that I would look at based on your words that if it is a big, big headache now, maybe it's better to just cut your losses, get out of it, sell it now, and run and go from there. So, Robert, what more would you? want Hainan to share to make a determination if she should keep it or sell it? I would say, what's the average capital appreciation in the area of this home? And you can get that through the comps and figure that out locally. Also, you could look at is the potential there

Starting point is 00:31:07 where they could do a land contract for now? Or just look for other ways to really minimize the losses? or maybe there's is your loan, because we don't know if it's an FHA or what type of loan it is, is it assumable? Could they get out from this where someone will pay the full amount owed to try and get you out of any potential losses just because they can assume the loan? That could be another opportunity. So there are things to look at, but I would just want more information to try and figure out a way to further help them of how to get out of this with the least amount of losses. Yeah, it seems like this $7 or $800. of negative cash flow that they're incurring every month by owning this. I mean, that's $8,000

Starting point is 00:31:51 a year in cash out of their pockets that they're just not collecting on. I'm right there with you. I just, I agree. I think the key to this answer is the capital appreciation potential. If this can appreciate over the next year, maybe two, enough to not just offset those cash payments of from a negative perspective, as well as, you know, climb to that 640, 650, 670 range where they're actually now back in the money. That's the only way this is going to work. But geez. Yeah, this is a tough situation either way, Austin. And, you know, the only other thing I could think of is maybe they could refinance. I know they don't have any equity in the home, but if they have strong earnings and strong credit, maybe there's a world where they could get a fixed mortgage rate and get the payment back

Starting point is 00:32:40 down to where they didn't have all this negative cash flow every single month. And also maybe there's a situation where they could get the PMI removed. That would lower the payment down some. So this is just a tough, tough situation. And I hope they give us more information to go off of. So maybe we can add more color to this and help them find a solution. All I know is that if you want to be a landlord and a real estate investor, learn from things like this that are happening. Right. I'm not picking on this listener, of course not. I'd never do that. But I do just want people to be cognizant that like real estate isn't always just a, I'm going to buy a house and be a billionaire. Like this is cool, right? There are, especially if you're a landlord, right? I'm going to buy a house and be a landlord. I'm

Starting point is 00:33:24 going to make all this money, right? It doesn't always work like that, especially if interest rates are high, especially if you're in a market that has, you know, volatility in the short term, right? Especially if there are these other different things that could go wrong, including what happened to hand in here. So, man, I'm so sorry to see this and we'll definitely be rooting for you guys and hoping you guys can figure this out. Give us an update. Whenever you guys decide what's going on, you mentioned how much of a headache it might be to keep it around and wanting to sell it, take the loss and learn from your mistake. Robert, there's like three roads that can take. Road one, sell it, definitely take a loss of like 40 or 50 grand. Road two, keep it, cross their fingers that

Starting point is 00:34:01 the capital appreciation goes up by 7, 10, 12%, and that offsets the negative $8,400 that they'll see in the next 12 months or negative, let's call it, 17,000 over the next two years. Or option three is refinance it. And maybe there's a world where you can get that payment back down closer to the 2,800, 2,900 range. Just get out of the arm. That's the big thing. The adjustable rate mortgage is what's really killing you here.

Starting point is 00:34:25 Yeah, I agree. Everyone, thanks so much for hanging out with us on this week's episode of the Rich Habits Podcast. Don't forget to subscribe to the newsletter. Don't forget to follow us on Instagram. Email us your questions at rich habitspodcast at gmail.com. And for all you graduates that sent in your photos, I emailed back the winners. So if you did not get an email from the rich habits podcast at gmail.m. Email address, unfortunately, you did not win. But we had a bunch of cool winners. We had some twins. We had some college grads, some high school grads, some really cool people won. So we really love seeing all these awesome graduates taking this $100 and in a

Starting point is 00:35:01 investing it to their futures in those Roth IRAs, just like I know John's going to do here as well. We're so excited for everyone that's a winner and everyone that listens to the podcast, right? Just make those moves now so you do not have to worry about them in your 50s and 60s. And again, thank you all for following along on this amazing journey with Austin and I through the Rich Habits podcast. We are so excited for the newsletter and everything else we are building to help guide all of you to financial freedom later on. life and as soon as possible, but we appreciate you each and every week. So make sure you share

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Rich Habits Podcast - Q&A: Stuck in a Real Estate Investment, 3X Leverage ETFs, & HELOCs to Invest

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