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today.

1:01

Welcome to Passive Real Estate

1:03

Investing, the show where busy people

1:05

like you learn how to build substantial

1:07

passive

1:08

income while creating wealth for the long

1:10

term. And now,

1:11

here's your host, Marco Santorelli.

1:14

Hello my friends and welcome to another episode

1:16

of Passive Real Estate Investing. I'm your host,

1:18

Marco Santorelli. Well, we have an interesting

1:21

episode today because I was on the phone

1:23

yesterday talking to one of my good buddies

1:26

and industry veteran about

1:28

mortgage financing and whatnot. And Aaron

1:31

has been on the show multiple times and

1:34

we were talking about interest rates and how they've

1:36

gone up and is it too high and is it

1:38

a bad thing, a good thing? Does it even

1:40

really matter?

1:41

And we thought, hey, let's do

1:43

a podcast episode on that because it's actually a pretty good topic

1:46

because I think a lot of real estate investors today are

1:48

asking, well, are mortgage rates too high? And

1:52

the answer to that question, well, I'll just

1:54

leave that till the end when we're

1:56

all wrapped up. So Aaron

1:58

has been a veteran in the finance industry.

1:59

industry since 1997 and he's

2:02

been focused on real estate investors, which is why

2:04

I love working with him so much. He just

2:06

understands the game of investing and

2:09

he knows how to structure mortgage financing so

2:11

it is optimized for

2:13

what you want to do as a real estate investor. And

2:16

he has a big team. I think it's 22 total staff

2:18

members that help him finance

2:20

investment loans and I just found out today

2:22

that he was ranked number seven

2:24

out of 1.1 million loan officers

2:29

around the country which puts him

2:31

right up there in the top 0.01% of loan

2:34

officers. So

2:37

with that, Aaron, welcome back to the show.

2:39

Thanks buddy. Good to be back. I think this is number seven

2:42

that we've done.

2:43

Number seven? I

2:46

think this is the seventh podcast

2:48

we've done together. Oh wow. Well, I guess is

2:51

that too much? No, heck no man. I'm waiting

2:53

for, I can't wait for number eight. You know what? Is

2:55

that too much? It segues right into the topic of

2:57

today's show and that is when our mortgage

3:00

rates too high. So

3:02

obviously you and I probably have a biased

3:04

answer to that and we're going to say that

3:07

it's never too high but

3:09

I guess it really comes down to different factors

3:12

and so let's talk about those. So

3:14

let's just start off with that basic question. When

3:17

are mortgage rates too high?

3:18

Well, I think the easiest way is to go back and look in

3:20

history what mortgage rates have done.

3:23

I get there's different economic things that

3:25

were happening at that time too but rates have pushed

3:27

as high as reaching 20% as

3:29

far as a 30 or fixed mortgage and

3:32

there's always an environment where a 30 or fixed

3:35

or a mortgage period will work regardless

3:37

of the interest rate but I think

3:40

when is the rate too high is a personal

3:42

question to be asked by the individual investor.

3:45

Can he make the deal work or can they not make the deal work?

3:48

So deals that we were doing that

3:51

you would have done where it was very very lean and you start

3:53

pushing those the interest rates go to a certain

3:55

point you can't make the numbers work you can't find

3:57

the deal work then yeah the rate the rate might be too high. but

4:00

I think it's not a matter of rate. It's just a matter

4:02

of deal. And I think also the

4:04

rate itself answering that question too

4:06

high is really has to do with why

4:08

is the person investing? Are they doing

4:10

it because it's just the right time, the

4:12

whole world is doing it, interest rates are low, costs

4:15

are low. Yeah, that's when everybody

4:17

would do it. Anybody would invest from cost or

4:19

low or cost of money as well.

4:22

But that's not real estate investing. That's

4:25

opportunity. If you're an opportunity

4:28

of ore and you're only taking advantage of opportunity

4:30

when it's just laying out there, easy to pick

4:32

up money off the ground, sure. But that's not what

4:34

an investor does.

4:35

When I think of mortgage rates or

4:37

interest rates, what I think of is

4:41

one or two things actually, it's the cost of

4:43

the money. It's the cost, you might think of it as

4:45

the cost of doing business, but it's the cost to

4:48

borrow that money to allow you to

4:50

do the deal. So I think

4:52

of it this way, if the cost of that mortgage

4:54

money is let's say 3%, well,

4:58

that's the cost of borrowing that money. If it's 20%,

5:01

it's 20%. It doesn't matter what

5:03

it is. If at the end of the day,

5:05

the deal works, if the deal makes

5:08

sense from an investment perspective,

5:10

it has a cash on cash return and a

5:12

return on investment, then

5:14

it doesn't matter what the cost is. If

5:17

the cost to borrow your funds is let's say 3% and you're

5:19

making 6%, well, you're making a 3% net gain.

5:21

If the cost of that mortgage

5:26

loan is 20% and you're making 30% total return and

5:28

you're making that extra 10%, well, that's

5:33

an extra 10% net

5:35

profit ahead of the game. So

5:37

you got to look at what are you getting out

5:40

of it? Not so much, what is

5:42

it costing you? Because that's in a way

5:44

being penny wise and

5:46

pound foolish. Do you think I'm right or wrong

5:48

in that way of looking at it? Well, 100% agree

5:51

with you. It's a matter of what

5:52

are you receiving and I'll take it even a step further depending

5:55

upon how you go about the deal itself.

5:57

Sometimes the return is infinite because

6:00

is how much of your money was actually in it. So

6:02

if you take the time to see that, if it's a true

6:04

arbitrage of just taking somebody else's

6:06

money, putting it to work and somebody else is paying it back, and

6:09

you're scraping a little bit off the top for you at

6:11

the same time, then the return

6:13

is infinite. Even though you're promising to repay

6:15

this guy over here, as long as you keep

6:18

somebody else paying them, you're just making money

6:20

on top of money. When people talk

6:22

about a cash on cash return, which was a great metric

6:24

to really get people interested in real estate investing

6:27

from the very beginning, but what they

6:29

failed to really look at is the amortization

6:32

metric of having somebody else pay off the

6:34

financing. Now, if you're putting down

6:36

your down payment plus your closing costs, and

6:39

then you have a third party, even if there's no cash

6:41

flow coming to you, just that third party

6:43

occupying the real estate, paying back the loan, that

6:46

itself is going to have a compound growth

6:49

over that 30 years of paying off that mortgage, advertising

6:52

that loan against your initial investment. You

6:54

could see an easy 10% when you're putting 20% down, plus

6:58

if there's 5% costs, you're

7:00

easy at 10% annual increase

7:03

on your initial investment every single year,

7:05

just by having somebody else pay off the loan. And

7:07

then securing a long-term instrument,

7:09

I mean, securing an asset that

7:12

is appreciating because of inflation, even

7:15

only appreciating, if you guys run the numbers yourselves,

7:18

an 80% loan to value, meaning you

7:20

borrowed 80% of the value of that home, and

7:22

appreciated only at 2.5% of the

7:25

overall value annual, you're

7:27

going to see another double digit increase

7:29

on your investment. That's

7:31

when you start getting to the point of, you're

7:34

not using your money to compound

7:36

the growth of your investment, plus when it does

7:38

get to a point of cash flowing, that's just compounded,

7:41

and the compounded cheering on

7:43

top of the Sunday, if you will. So for

7:46

me, it's not a matter of what is the rates, it's

7:48

not a matter of what are the costs, it's a matter

7:50

of what's the total package, what's

7:53

the cost of the money, what's the cost of the asset,

7:55

how much will that asset yield on a monthly

7:58

basis, based upon somebody else using that asset. asset,

8:00

what's it gonna cost to maintain that asset?

8:03

When you start putting all that together and looking

8:05

at it as a business, you see it as

8:07

a business structure, cost of

8:09

money and the rates really become very, very irrelevant,

8:12

it's just the number and the deal.

8:13

Yeah, I was talking to Kathy, who you

8:16

obviously know very well, my operations

8:18

manager yesterday, about this subject

8:21

for this episode, the cost

8:23

of money and whatnot, and the one thing

8:25

we both agree on is that the

8:27

rates are relative because she remembers

8:30

the day when mortgage interest rates were

8:33

above 18%, and I had to look it

8:35

up to get the exact month for my own

8:37

knowledge, and it was October, 1981, we

8:40

had mortgage rates of 18.6%, think about that, we're,

8:44

as you said, pushing 20%, 18.6% mortgage

8:46

rate back then, and

8:48

granted, it probably slowed down the real estate market,

8:50

but people were still transacting

8:52

real estate. That was the high, the

8:55

low was January, 2021, and

8:58

at 2.65%, incredibly low, I mean, that's almost

9:00

free money, it's below the rate of inflation, so

9:02

that's essentially free money, but that's a wide range,

9:05

but if you look at the long-term average,

9:08

according to Freddie Mac, their data, and

9:10

you go back to 1971 and you pull an average,

9:13

you're looking at just under 8%, so

9:15

the fact that we're in that 7.5, 8% range right now, we're

9:20

actually around that long-term average,

9:23

it's not like this is abnormally high, it's

9:26

not even low, it's just what

9:28

it is, it's

9:29

a long-term average. And also, taking

9:31

that long-term average you're talking about, 7.79% is that average that

9:33

Freddie, I

9:35

think 7.76 or 7.79 is what you're gonna find with

9:38

Freddie all the way back from 1971 to today, but

9:42

if you take out quantitative easing, from 2009

9:45

to today, which is when the Fed dumped

9:47

in $8.9 trillion, the average interest rate was 9.1%, if

9:50

you look at bankrate.com today, it's 8.02, according

9:53

to bankrate.com for a 30-year fixed mortgage

9:55

for a person buying a house to live in, so

9:58

we're still below that. average when

10:01

the market is what dictated interest rates.

10:03

The market was based upon mortgage-backed securities, people

10:05

investing into those pools, us borrowing

10:08

close pools, taking some of those pools to lend to the

10:10

public. But when you start taking the

10:12

US Treasury capital, filtering it through the

10:15

Fed, and then putting it into the market

10:17

to bring those interest rates down artificially, even

10:20

taking all that into account, the average interest

10:22

rate from 2009 up until now is just under 3%,

10:25

but just right around 3%. When you

10:27

take that and factor that in all the way back to 1971, and we're still at

10:29

nearly 8% with that included in it, it tells us guys,

10:36

we're still at an amazingly low interest

10:38

rate. When the market dictated the

10:41

rates based upon the risk

10:43

of putting money out there for people to use for

10:45

housing, we're still lower than that risk

10:47

was ever created from 1971 to 2009. Yeah,

10:50

it's all about putting things into perspective.

10:53

Like we like to say everything is relative, and

10:55

it is. I mean, when we were at 3%, that's

10:58

really low compared to the

11:00

historic average of 8%, or

11:02

where we are today around 8%. But if you

11:05

compare that 8%

11:06

to where rates were well over

11:08

a decade ago, it's a bargain. You

11:10

know, it's just funny. I remember when rates were going

11:12

down from 11 to 10, 10 to 9, people

11:14

were saying, holy crap, we're in the single-digit now.

11:17

You know, this is a great opportunity to refinance

11:20

and get this lower rate of 9%. And you know, people

11:23

thought they just got a steal of a deal, like it's the

11:25

deal of the century, and then it dropped to 8%.

11:28

And it's like, okay, let's refinance, and we got a

11:30

lower rate, a lower mortgage payment. And

11:33

you know, they're thinking, yeah, this is great. It's

11:35

all relative. I mean, when rates are high,

11:37

are you comparing it to something that was

11:40

higher or lower prior to that? And

11:42

you know, you might feel good or bad about it, but it is what it

11:44

is. It's just the cost of money. You just have to

11:46

adapt to it. As long as the deal

11:48

makes sense, this is kind of the way I look at it. As

11:51

long as the deal that you're underwriting makes sense, it's

11:54

in a good market, poised for growth, and

11:57

it's in a good neighborhood where it's got appeal

11:59

and you're going to you're gonna have a great tenant pool to draw from,

12:02

and the property pays for itself, like it

12:04

carries itself, and your tenant is actually paying

12:06

you, and thereby paying off your mortgage,

12:08

you know, it's probably a good deal. So

12:11

the cost of capital is just your ability

12:13

to leverage your existing investment capital

12:16

and put as little down as possible while

12:18

allowing other people, other people

12:20

as in OPM, other people's money, help

12:23

you purchase the majority or

12:25

the balance of that investment. So you put

12:27

your down payment down, you borrow the rest,

12:30

if the numbers pencil out, guess what? You've

12:32

got an investment, you've got a deal. What am I missing

12:34

there, Aaron?

12:37

I 100% agree with what you were saying there.

12:39

If I look at it from a little...

12:40

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12:42

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12:44

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12:47

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12:49

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12:51

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12:53

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14:02

The

14:04

more of a simple perspective, you kind of outlined

14:07

a part of a formula for people to use to

14:09

determine what asset to buy or

14:11

what business to buy. Because I look at these properties as

14:13

its own business. I believe that

14:15

what you're really searching for is something you can keep

14:17

reasonably rented for the entire time you own it. You

14:19

can raise rents on it and it will appreciate

14:22

at least two and a half percent. If I'm seeing

14:24

that, I'm happy with that deal. I'm

14:27

very happy with that deal. We also know that

14:30

those are cut down numbers. It's going to

14:32

be stronger than that. One of the things I

14:34

find a lot of solace in as far as making it strong

14:37

in buying, and this is Aaron Chapman's opinion,

14:40

I believe that single family residences

14:42

will be the most valuable real

14:44

estate per square foot left on the

14:46

planet. Why? Because it's being heavily targeted

14:49

by the hedge funds. Your Blackrocks, your State Streets, your

14:51

vanguards are set. And

14:53

I don't, this is just rumored that they would

14:56

have the capability to control 60% of the

14:58

available single family housing by 2030 or 2035, one of

15:00

those dates. That's

15:04

significant. So I don't see

15:06

if that's a target of theirs that anybody

15:08

in our space that wants to get

15:10

in and own that real estate is going to get anything

15:12

but improvement in that growth that we

15:14

were just talking about. But you also have to be picky

15:17

about where you buy it, right? There's a lot of people

15:19

that are so caught up in the cash on cash return

15:21

metric that was the easy sale point for

15:23

the last few years that that's all they focus

15:25

on. But then you're in a market where it's

15:28

a rougher tenant, it's a rougher neighborhood,

15:30

it's a house that's going to take a lot of upkeep. Any

15:32

cash you made is going to go back

15:35

into keeping that house even occupiable

15:37

because of the factors you're dealing with

15:39

all those others. So it's taking the time

15:41

to understand what makes the most sense to you and

15:43

what makes the most sense from a long-term perspective,

15:46

not how much I'm going to cash flow the first

15:48

year, and how much you're going to cash flow

15:50

and other things within that first five

15:52

years. If you look back in history, and

15:55

you and I have listened to our mentors

15:57

always say, when you start a business, you

15:59

need to have... have reserves for at least the first three to

16:01

five years before you start to see cash flow. I

16:04

don't think real estate is any different. We

16:06

were given a gift for the last decade that

16:09

you could walk in and get cash for the right out of the

16:11

gate. I believe that it always

16:13

has been, always should have been looked at as

16:15

you're going to see a compounding cash

16:17

flow growth for that five, six, seven,

16:19

eight, ten years and that's where your target needs to

16:21

be. Not looking at what am I going to cash flow this month. I

16:24

want to give a quick example. I've used the same

16:26

example on a couple of previous episodes

16:28

over the last, I don't know, six weeks or so. Before

16:31

I give the example, what would you say is a fair

16:34

average annual rate of appreciation

16:36

to use for this example? Is five percent

16:39

too high, too low or? I

16:41

think five percent is very, very, very fair. I'm still

16:43

seeing people out there talking eight, nine. If

16:45

you actually look at the case shoulder, CoreLogic

16:48

and Black Knight came out just this year. They

16:51

said that the national average is 8.9% in the US

16:54

for appreciation. So five is extremely fair. How

16:56

far back did they go in taking that

16:58

average? That's just 2023. Okay.

17:01

So the 2020 and 2021 were abnormally high. 2022 came

17:04

down. So that's still a pretty

17:06

healthy.

17:07

That's smoking. 8.9% with

17:10

the highest spike in interest rates we've seen.

17:13

We've never seen interest rates go up that fast,

17:15

that hard and we still saw an 8.9% increase in

17:18

property prices. That's significant

17:20

information for people to understand. And that's

17:23

heavily being driven by the high demand

17:25

and low supply that I keep talking about time

17:27

and time again on this show. I

17:29

keep going back to the fact that we have

17:32

a pretty significant imbalance when

17:34

it comes to the housing supply

17:36

in the country. It's just strong demand, not

17:38

enough inventory. And those dynamics,

17:42

it's just economics 101. It's just pushing the prices

17:44

up. It's pushing rents up, too. I mean, even still

17:46

to this day, a lot of my properties

17:49

are seeing rental increases, not

17:51

as much as it was two, three years ago,

17:53

but we're still seeing rent increases every single

17:56

year. So it's pretty strong. But

17:58

let me share a quick example. with you

18:00

that I did in the last few episodes. I

18:02

took a $200,000 property where you're putting your 20%

18:06

down, 20% is $40,000, and

18:09

I'm making the assumption that cashflow is

18:11

not very strong because interest rates

18:13

are at 8%, and I used 8%

18:16

as this example. So that's giving

18:18

you a net cashflow of only $200 a month. Doesn't

18:21

sound like much, it's still positive cashflow,

18:23

but for the sake of making this example

18:27

illustrative, we're gonna say

18:29

it's $200 a month net cashflow. And

18:31

it's a 30-year fixed rate mortgage, again, 8%

18:33

interest rate. We're assuming

18:36

an average 5% appreciation

18:38

per year. That could be higher, it could be lower, as

18:40

we talked about, and a rent inflation of only 4%.

18:44

So if you just look at this example

18:46

in the first year, like just one year, your

18:49

cash-on-cash return at $200 a month for 12 months

18:52

is 6%. I

18:55

mean, it's not great, it's not bad either.

18:58

It's $2,400 in cashflow

19:00

for that first year. But here's

19:02

where it gets exciting, Aaron. If you

19:04

look at the amortization

19:06

of that loan, which is the lowest in

19:09

its first year, your return

19:11

is $1,337, let's do the math on that. It's 3.3%.

19:15

You just take that equity gain divided by

19:17

your down payment of $40,000, you're 3.3% ahead of

19:19

the game in

19:22

an unrealized return in year

19:24

one. And that only gets better from there because each and every year,

19:26

that number's higher and higher and higher because you're amortizing

19:29

more and more and more of the loan each and every year.

19:32

So your equity return goes

19:34

up every single year. So this is your worst case scenario is 3.3%.

19:38

But you stack on top of that, the

19:40

other side of the coin, the appreciation side,

19:43

and if we're talking 5% on a $200,000 home, well, that's $10,000, right?

19:48

$10,000 divided into your down payment of $40,000 is

19:52

a 25% rate of return. Again,

19:55

unrealized return, but it's

19:57

still 25%, it's $10,000 more in equity.

19:59

you have at the end of the year, then you didn't have

20:02

at the beginning of the year. And again, this is the

20:04

worst case scenario, it only gets better

20:06

from there. This is the worst you're going to do is

20:08

in that first year. That's just year one,

20:10

guys. Understand that that's just year one, we

20:13

start averaging these things over 30 years at compounds

20:16

bigger, I only look at two and a half percent on the

20:18

appreciation. When

20:20

I do a number like that, and what I show with

20:22

that is you're looking at 13%, even

20:25

at two and a half. So it's just, it's an amazing

20:27

number, we start getting into the total package.

20:31

Don't quit just looking at narrow

20:33

vision of cash on cash. Look at everything Marco's

20:35

talking about here. And it becomes a

20:37

significant investment. And

20:40

people, for some reason, if money's not

20:42

hitting your bank account, you're not feeling it. But it's

20:44

amazing how people will invest in the stock market. It's like, oh,

20:46

you know, it goes up and down. And I'll just see how it all is. We've

20:49

been conditioned. And unfortunately,

20:51

the condition with the cash on cash has gotten

20:53

people away from looking at the total package. And

20:55

that's I'm with you, we need to be championing

20:57

this message to everybody that it's, there's a

20:59

lot more dynamics to real estate investing. It's

21:02

way beyond cash flow, because it's

21:04

these assets, these assets are going to compound

21:06

are going to be

21:06

huge. I am I just close on two properties

21:09

in Missouri, because I need to get my hands

21:11

on as much investment real estate as I can, as quickly

21:14

as I can, for the sake of my family for not

21:16

just me, it's not about me, because these aren't going

21:18

to cash flow that much. It's about the

21:20

next two generations. Are

21:22

they going to have the opportunity we have today

21:25

with what we know about the target

21:27

on the real estate on the single family

21:30

residents, and also the

21:32

plan, we all know this is a plan to

21:36

create a subscription based economy. And

21:38

when you're a subscription based economy, you're paying monthly

21:41

for everything. Well, if you don't own

21:43

the real estate, you're going to be paying the subscription.

21:46

If you own the real estate, you'll be providing the subscription.

21:48

We want to be able to do that for not just ourselves,

21:51

but the next generation to be able to carry on that that

21:53

legacy legacy is not money. Legacy

21:56

is assets, carry on those

21:58

assets and the education.

21:59

that we're giving you today is the education you

22:02

need to be given to your heirs so they

22:04

have that to carry through. Yeah, so

22:06

this is just exciting and it gets even more

22:09

exciting as each and every year goes by with

22:12

not just one property but all your properties. So

22:15

when you step back,

22:17

let's go to the back to the topic title theme

22:19

of this episode and that is our

22:21

mortgage rates too high. Well,

22:23

the example that we just talked about,

22:25

Aaron, is an example based

22:28

on an 8% mortgage rate, right?

22:31

So if you buy this $200,000 investment

22:33

property and you're getting whatever, $1,600

22:35

a month, $1,700 a month in

22:37

gross rent, paying your expenses, you're paying

22:40

your mortgage, your debt service, which

22:42

is $1,467 a month based on an 8% rate. Well, you know, what's left

22:45

over is

22:49

your cash flow. Let's just say you have zero

22:51

cash flow, okay? Let's just say you don't have any cash

22:53

flow for the first few years because your rent

22:55

isn't high enough to cover the payment. But

22:58

let's remember, you're locking into

23:00

a 30-year fixed rate mortgage, which means

23:02

that every month and every year, your

23:05

mortgage payment is $1,467. What happens in like three, four, five

23:09

years from now when your rent has gone

23:11

up a few hundred dollars? Well, now you

23:13

are heavier into your positive cash

23:15

flow, right? Your rents will go up

23:18

over time because of rent inflation, but your

23:20

mortgage payment, guess what? It

23:22

doesn't go up. It's going to be the same today

23:24

as it isn't 10 years from now as it isn't 15 years

23:26

from now as it will be when you pay off that last

23:28

mortgage payment 30 years from now. It's going

23:31

to be $1,467, but guess what? Because of inflation, that $1,467

23:37

30 years from now when you pay off that mortgage, it's

23:40

going to be the cost of a Starbucks latte

23:43

or something.

23:44

Very much. In fact, I've got a calculator that

23:46

will calculate that for you. If you go to the app store,

23:48

you literally go get my app

23:51

that calculates the time value of money in

23:53

your mortgage. When you calculate what your mortgage payment

23:55

is, you can fast forward all the way to 2053 and

23:57

see you next time. that

24:00

you actually paid less than what

24:02

you borrowed in most cases,

24:04

depending upon where that rate lies, or

24:06

within range of what you borrowed, even though you paid all

24:08

this interest, inflation eroded the dollar

24:11

for you. Because we have continued

24:13

to see inflation every single year.

24:15

And one way to really illustrate inflation and to tell

24:17

people wrap their head around this, Marco, is

24:20

in the 1920s and before, they would

24:22

mint a $20 gold piece,

24:24

is a one ounce gold piece. You can walk

24:26

into the department store and get a hat, a suit,

24:29

a tie, a shirt, a belt, a pair of socks, a

24:31

pair of shoes for that $20 gold piece.

24:33

You walk into the department store today, you can't even get the

24:35

socks for 20 bucks.

24:37

But you can get all that stuff for an ounce of

24:39

gold. Why? Because an ounce of gold is $2,000. It's not that gold has

24:43

gone up in value. It's not that the cost of the suits

24:45

and the hats and all the other crap has gone up in value. It's

24:47

the instrument that we are trading for that,

24:49

which is the US dollar has declined that much

24:52

in value. So as you're

24:54

showing here, the price of everything is going

24:56

to go up in inflation. You're talking about the

24:58

value of the home, the rents, your cash

25:01

flows. You were just looking at that cash flow, the compound.

25:03

You mentioned $200 a month in cash

25:05

flow, but you're going to raise rent. You said 4%.

25:08

What was the gross rent we were going off of this $200,000 house?

25:10

Was it $1,800? I

25:13

have to look it up. I think it was around 1,700 bucks

25:15

or something like

25:16

that. 1,700. So if we're at 1,700

25:19

bucks, we'll just do the quick math here. $1,700 and

25:21

you're at a 4% increase, that's $68. Well, that's $68. Now

25:23

is what? 34% increase on your

25:26

cash flow.

25:31

You went from $200 to $268. Your

25:34

cash flow is increasing double digits, guys. Think about

25:36

that. Double digit compound

25:38

increase on your cash flows every time you raise

25:40

the rents by single digits. It's

25:43

the long game. You've got to look at the long

25:45

game. Quit getting so tunnel visioned that

25:47

you think the interest rates is going to crash

25:49

everything. The other thing is, I really warn everybody

25:51

is quit trying to time the market. They

25:53

think, well, everybody says the rates shouldn't come down. I

25:55

don't know that they are. Now Warren

25:58

Buffett himself, and we all will listen. to

26:00

Warren Buffett says the 30 are fixed is

26:02

the greatest financial instrument in history because it's

26:04

a one-way bet. If the rates go down,

26:06

it's refinance. But

26:09

if they don't and they keep going up, which I believe

26:11

they could for an extended period of time,

26:14

you protect yourself from potential financial

26:16

devastation that some people will get hit with if they

26:18

do the arm. What's also interesting, CNBC

26:21

recently, I've heard them, I was watching and they

26:23

have very low inventory, presently

26:25

low inventory, and they say their best shot at inventory in

26:27

the near future is when the arm rates start

26:31

to come due.

26:32

When the short-term loans start to transition

26:34

to their long-term loans, they

26:36

say we could start seeing those foreclosures, people

26:39

not being able to afford those houses and inventory

26:41

come back on the market. So if you want to debate...

26:44

Hey listeners, you know I'm always on

26:46

the hunt for knowledge that gives me an edge in real estate.

26:48

Recently I took Chris Voss' class on

26:51

negotiation on Masterclass and let

26:53

me tell you it's a game changer. He talks

26:55

about various negotiating techniques like

26:57

mirroring your counterpart to establish rapport

27:00

and it actually has been helping me a lot in negotiating

27:03

deals. So let's talk

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Trust me, you don't want to miss out on this opportunity

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game with Masterclass. I'll debate

28:26

it all damn day long. So, you

28:28

know, we could go on and on about this, but from

28:30

where I sit to answer that big

28:33

question, I'll tell you what my answer is. If

28:36

you're asking me or asking

28:38

somebody, especially me, whether

28:41

mortgage rates are too high right now, my

28:44

short answer would be no. Could

28:46

it be lower? Sure. Would I like them

28:48

lower? Yes. Can they be higher?

28:51

Yes, they can be. Would it affect

28:53

my decision to invest? No,

28:56

it wouldn't because it all comes down to the deal.

28:58

I want to look at the numbers and

29:00

see if the numbers make sense. Does it pencil

29:03

out? Does it make financial sense? When

29:06

I look at the investment holistically,

29:08

does it make sense to me to

29:11

achieve whatever my financial goals are? If

29:14

I have to pay a 9% mortgage

29:17

rate to acquire a property

29:19

that I know is going to be a good long-term

29:22

investment and I stand

29:24

to gain through the amortization and the

29:26

appreciation and I will be getting positive cash

29:28

flow in the years to come, even if I have to wait, let's say,

29:30

four or five years from now. If I like everything

29:32

about it and it checks all the boxes for me,

29:35

I'll be willing to pull the trigger on a deal if the

29:37

deal makes sense, again, holistically.

29:40

So whatever is considered too high, and I say

29:42

too high in air quotes, is really a personal

29:46

decision and a financial decision. You've got

29:48

to just look at all the

29:50

factors and the unique

29:52

circumstances of

29:54

that deal. So when you underwrite

29:57

it, you've got to underwrite it based on

29:59

the current market conditions and

30:02

when I say market conditions that includes

30:05

the current interest rate, whatever

30:07

that mortgage rate is, because it will change

30:09

all the time. It fluctuates, it goes up and goes down. We've

30:11

had highs of 18.6% back in 1981. We've

30:14

had a 2.8% whatever it was, 2.6%, 2.65% in January of 2021.

30:22

So these things are going to continually change

30:25

and so what? You know what? If you have a great deal in your

30:27

hand today and you lock it in at 8%

30:30

as a mortgage rate and in three years from now

30:32

rates come down to let's say 5, 5.5%. What

30:35

do you do? You just refinance it. You get

30:37

the lower rate. You know you can adjust. So

30:40

but at least you didn't lose out on that deal

30:42

today and be able to ride the

30:44

equity train for the next three, four years until

30:46

you refinance it at cheaper money down

30:49

the road. And maybe what you do

30:51

is refinance it at a lower rate and pull some money

30:53

out and take that money that you pulled out and

30:56

I will say it's tax-free. You

30:58

pull that money out tax-free. Use

31:00

that as your down payment to

31:02

buy another property. Meanwhile

31:04

you still have the first property. You've refinanced

31:07

it for a lower rate and now

31:09

you have a good deal turned better plus

31:12

you have extra money because of the equity gains that you

31:14

can use to put towards another investment property.

31:16

So this just compounds itself in

31:19

terms of what you can achieve and

31:21

gain. And so this is why it's important

31:23

to not be myopic and short-sighted

31:26

on it. You want to look at the long term and the medium

31:28

term and what you could potentially turn this into.

31:31

So anyway I feel like I'm on a soapbox

31:33

you know and just preaching but essentially

31:36

that's how I view it. A sermon like

31:38

this is needed now and again because of what's going on

31:40

in the world. So you

31:41

know Pastor Marco is who

31:44

will definitely lead you and you get in that point. Another

31:46

point it's you've got to be talking to the right

31:48

people. So we're

31:51

in an environment where especially

31:53

the lending environment it is back to the levels

31:55

of 1996. I got in 1997 as far

31:58

as the volume of transactions getting done. The

32:00

average person in my space is doing between zero and

32:02

one transactions per month. I'm still doing, you

32:04

know, 50 plus a month. Very, by the grace

32:06

of God, are we still that busy

32:09

and taking on a hundred new applications a month?

32:11

It's very, very awesome to see that kind of volume going on in my world. Could

32:14

it be more? Yes, I'd love more, but you know,

32:16

we're at least able to do that much.

32:18

But what the point that I'm getting at

32:21

is that when you're talking to people in this

32:23

space that you could be 100%

32:26

of their income

32:28

that month, they're going to do everything they've got

32:30

to talk to you into something that you may not need to

32:32

be or should you should not be doing is possible.

32:34

You know, but if you're dealing with ourselves, not, you

32:36

know, again, I'm not not saying that you're not very important.

32:38

Every single deal is important to us. But you're one

32:41

50th of my income that's narrow. So

32:43

we talked to everybody. I talked to everybody. When

32:46

you have a situation you really are not sure

32:48

of, and it may not work, we're going to have a real

32:50

conversation about that because I absolutely need

32:52

you to be successful in the business. It's not

32:54

about that one deal for me. It's about deal

32:56

number 10. Because if I got you to number 10 to

32:59

me, you were successful as a real estate investor. I'm

33:01

successful with the line of work because I helped you get to 10. I'm

33:03

not successful because I did one and you

33:05

lost and got hurt. I'm

33:08

successful because they got you to 10. Marco's

33:10

successful. He got you to 10, 20, 30. That's

33:12

what makes us successful. So getting

33:15

yourself, surrounding yourself with the correct people that

33:17

understand these principles, tactics and

33:20

strategies will change your time. Principles

33:22

will always stay the same. They don't understand

33:24

these principles and they're giving you just whatever

33:27

thought process they can to get you to just close on

33:29

a deal regardless of what that deal is.

33:31

You're putting yourself at risk. You've

33:33

got to be careful who your team is. You've got to get the right

33:35

team. And I will scream long and

33:37

loud, Marco and his team are some

33:40

of the best in the industry. Aaron, I really appreciate

33:42

that. You want to wrap this up? I think

33:45

we covered what we wanted to cover and achieve the goal

33:47

we wanted to achieve. So 100

33:50

percent. I want to appreciate the

33:52

time. Guys, just text me. I'm

33:54

going to put this out there. I'm going to give a crap. Text

33:56

me my personal cell phone. 602-291-335-7580. Again,

34:00

602-291-3357. Text

34:03

me if you need more details how

34:06

to get through some of these things. I'll have

34:08

my assistant reset us up on a call. I'm

34:10

that passionate about it. And I know that's a word

34:12

everybody use about making sure you're successful. I give you my

34:14

personal damn cell phone. I need you

34:17

guys to be successful this week. Got to change

34:19

the trajectory of what's happening out there with

34:21

the large, like he was trying to take all that

34:24

real estate away from us and from your future,

34:26

your children's future.

34:28

Aaron, appreciate you coming on the show. Always

34:31

great chatting with you. So thanks again.

34:33

Thanks, buddy. And for everybody else listening, a

34:35

couple of things just in wrapping up here. Remember to

34:37

download our free report on our website, the

34:40

ultimate guide to passive real estate investing.

34:43

It'll only take you 30 seconds to do that. If

34:45

you are interested in learning more about investment

34:47

property investing, get your free strategy

34:49

session with my team of investment counselors. Just go to

34:52

noradarealestate.com. It'll

34:54

be in the show notes, noradarealestate.com

34:56

and get your free strategy session. If

34:59

you're listening to this show, remember to subscribe.

35:01

Takes you three seconds to click that button. That way you

35:03

never miss an episode each and every week. Questions

35:06

about real estate investing, shoot them over to me. You

35:08

can do that at our website for the podcast

35:10

at passiverealestateinvesting.com or

35:13

just ask Marco at passiverealestateinvesting.com.

35:16

And last but not least, I'm gonna

35:18

start plugging my social media a little bit more often, but

35:21

you can follow me on Instagram at

35:23

Marco G. Santorelli,

35:25

that's Marco G like George, Giovanni,

35:29

Marco G. Santorelli. And

35:31

that is it. Thank you for listening today and

35:33

we will see you all on our next episode.

35:37

Are you on track to achieve your financial goals?

35:40

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35:42

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35:45

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35:48

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35:52

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