Welcome to the Get Real podcast. Your high-octane, boost of full on reality therapy for personal, business, and investing success with your host, Ron Phillips. Because somebody’s gotta tell it like it is.
Ron: Hey, everybody, welcome back to the Get Real podcast. I’m Ron Phillips, your host along with Heather Marchant. Hello. We’ve got another great episode today. I’m pretty excited today. Weather’s beautiful, Heather. Life is good on lockdown, apparently. So, anyway, no complaints here. I mean, I could complain, but nobody would listen to me. I guess people would listen to me for a minute. All of you would listen to me for a minute. Right. And then you would be like, this guy’s complaining. Turn it off. Nobody wants that. Want to hear that we could watch the news. No kidding. So I wanted to talk today, Heather, about something interesting that I heard a couple days ago. I was just driving. I was listening to the radio, which I almost never do, listen to radio. And I listen to an ad and it was a financial planner. And he starts telling the story of the tortoise and the hare. Everybody knows that story. Right. Heather, and we’ve been out this story since, you know, we were tiny little kids, tortoise and the hare. And anyway, does this shortened version, it’s an ad, right? He tells us shortened version. Then he says, you know, slow and steady wins the race. That’s the moral of the story. You know, it’s slow and steady wins the race. And then he proceeds to say that that’s what you should do in your investments. Which sounds really good. I mean, Heather, who doesn’t want to win the race?
Heather: Well, slow and steady always sounds good. Right. Versus high risk. I think what I hear in that is if you do the other option, you’re going the riskier route. Right. I think that’s by where he was going.
Ron: I think so. And, you know, he said I guess he was. I don’t really know what his point was. Other than that, in order to win, you have to be slow and steady. Now, when I hear slow and steady, I hear something entirely different. I hear weak and boring. We’re going to get crappy returns for a long, long, long time. And if we live a long, long, long time with really crappy, horrible returns, we can end up winning the race. That’s what I heard.
Heather: Yeah. And I think it also implies to me, like living below your potential, like what your options are and taking the lowest option. Instead of trying to find an option that’s good and is going to knock it out of the park for you. But is an aggressive or you know, it’s still conservative.
Ron: So let’s. Here’s what I’d like to do really quick, because I feel like as I listen to that, I feel like I have been lied to my whole life about this story and maybe I’m alone. But maybe some people out there feel the same way as me because I hear this story, and even since I was a kid, I’ve heard this story and I’m like, this makes no sense. What turtle is going to beat a rabbit? To be honest, I’ve seen it.
Heather: I’ve seen a turtle move. It barely blinks.
Ron: So I’m thinking to myself, OK, what is really the moral of this story? Right. Because it cannot possibly be that slow and steady wins the race. That’s not the moral here.
Heather: I think there’s a lot better morals from it for sure than focusing on that.
Ron: Let’s break this down. So here’s what happens in this story for all of you out there who didn’t live a good childhood and haven’t heard this story.
Heather: No Aesop’s Fables for you, right?
Ron: Aesop, man. This fable. If he’s the one who chose the moral of this, I’m really I’m really disappointed in Aesop.
Heather: I just looked it up. So I’m believe so because you asked and I hadn’t thought of it before.
Ron: OK. Well, here’s the here’s the story. So tortoise and hare, I envision the tortoise and the hare get into some kind of a fight probably over a girl. That’s my guess. Right. So they’re going to duke over a girl. And the tortoise says, yeah, well, I could beat you in a race. And the hare starts laughing and it’s like, whatever. And they probably make some bet under the table. You wouldn’t say in front of the girl because the girl would be irritated, she would leave and you would be racing for no reason. But they make this bet that whoever wins gets the girl, right? Or you can choose, do a pile of money, whatever you want. Right.
Ron: And so they they’re at the starting line. The gun goes off. Bang! Here goes the hare, right? It takes off. Smokes the tortoise. And the tortoise is just there, you know, doo,doo,doo. You know, you can imagine a turtle just running. It’s like walking down the street as fast as he possibly can. Finish lines way down there, way as I don’t remember how long they were running. But the hare gets about halfway, if I remember correctly. Yeah, about halfway. I remember, too, is like, man, I’m kind of tired. I’ve been sprinting. I think I’m going to just chill for a second. That tortoise is never going to catch me. Right. And he looks back. You can barely even see this. This stupid turtle is way back there, right? Well, so he sits down and he falls asleep. And here comes the turtle. Turtle passes him unbeknownst to the hare. Right. The turtle passes him and then he wakes up and he realizes this turtle is almost at the finish line. So he sprints, but he cannot make up the difference. And right at the end, nose to nose, the turtle wins. Dunh, dunh, dunh. And of course, the turtle was right. He gets the girl and you know, they live happily ever after, I think. I think that’s how it goes. So what is the real moral to this story? That’s the question. Is it really that slow and steady wins the race? I don’t think so.
Heather: That’s what I always thought as a kid, that that was the message. Right. Like, if you just take one step at a time, it’s gonna be fine.
Ron: Now, I don’t think there’s anything wrong with that message. If you’re a turtle. Keep going. Nothing wrong with that. Right? You can’t. It’s not like you can turn into a rabbit. So if you’re a turtle and the race, you want to make sure you’ve finished. You can cross the finish line. Whether you get beat or not, you have to finish the race. I think that’s I think that’s great. So Aesop’s got it going on there. Right? You just keep going. But if you’re the hare. Moral of the story is that the hare is an idiot. Yeah, I mean, let’s be honest. Okay. Maybe that’s not it. The hare is a prideful, arrogant loser ultimately because he lost. Right? It’s really what happened here. So if you are a rabbit. In other words, if you have the ability to make, in this example that I shared with you earlier, to make really, really great returns. Do it quickly and then keep going. Well, what turtle is going to beat you? Yeah. There’s no turtle on the planet that can beat, or I don’t even care if it’s an endurance race. The rabbit is going to win unless the rabbit is prideful, stops and takes a nap in the middle of this thing.
Heather: Yeah. Like I’m so above it’s like I’m so above everybody else that I can take a nap and still win. Like I can take a break. I can retire and I can still win the race.
Ron: So the moral of the story, the way I see it other is watch the hubris. And for all of you out there who don’t know what that means. That’s watch the pride. Hubris is pride, right. We read from the Bible that, you know, pride comes before the fall. Right. So here we have a perfect example of that. Now, the thing that I have a problem with the financial planner is that he’s taken this story, which is obviously just a knock at the hare and not that that the turtle is going to win races. That’s ridiculous. Turtles don’t win races. Unless they’re racing other turtles. Therefore, the real moral here is that you don’t stop mid-stream and take a nap because you think you’re better than the turtle. So don’t be a prideful jerk. But for God’s sake, if you’re a if you’re a rabbit, run. Yeah, I mean. Oh, that’s so frustrating. And sometimes pride can get us in trouble. We were just talking, Heather, about some joker that was I mean, I don’t even know really how to describe this guy, but he. Anyway, he sent you an email and he was he was kind of he was not kind. I guess in his email.
Heather: Yeah. I was just really brief and just said, well, it’s a good thing I didn’t go all in. I couldn’t. I can’t imagine not having, you know, my tenants all skipping out on paying rent, which Ron and I have talked about. There’s been some nationwide articles saying that rents were collected around sixty seven percent. So two thirds collections across the country. But that is a nationwide average where they’re factoring in a few really hard hit economies. And now we’re looking at our collections and art. And this is for the month of April. 2020. So we’re looking at our collections from our property managers with thousands of units across several different states and we’re at ninety five percent. So the nationwide average is. Yeah, you can take it for what it’s worth, I guess if you have a few cities bringing down the average. So it was yeah it was a bit of a burn though. Like wow it looks like I made the right choice keeping my money in stock so.
Ron: Okay. Yes. Some of this is really funny because you were having this conversation pre-COVID. Right. So pre-stock market crash. Pre all of this stuff. Yeah. Now this is interesting because this dude is not your typical dude. He had eight million dollars and on no planet did anybody tell him to go all in with eight million dollars in the real estate. No. Putting me out. No one did that. And least of all, Heather would say something like that. And furthermore, the stock market is down like 30 percent when he sent this e-mail, 30 percent. I mean, come on, people. Over two million dollar loss. Yeah. I can understand if you just lost over 2 million dollars in your portfolio and you’re a little bit upset. And so he’s taken it out on poor little Heather and he feels like a big man, but. Just do some math or a quick because I like math, math is fun. Let’s do some math because it’s really important that people understand this. And I’m going to go ahead and use Worst-Case scenario numbers, which this guy brought up. So I’m going to use the numbers that he did. OK, now, don’t know how you I don’t know how you acquire eight million dollars without being good at math. But I’m just going to run this out real quick. OK. It’s kind of pissed me off. He’s lucky that he e-mailed Heather because I would have e-mailed him back with the math so that he understood. So this guy chose and good for him. I don’t care. Leave your money in the stocks. No big deal. I happen to believe the stock market might come back and he couldn’t gain, you know, his two two and a half million dollar loss back. No big deal. But let’s play on a level playing field, because if the stock market comes back, that means real estate prices aren’t going to drop and the tenants are gonna start paying rent again. OK. All right. So either it’s not like either/or. These things are both gonna happen. Right. So either the stock market’s going to continue to drop and people are gonna have a hard time paying rent or it’s going to rebound. And then, well, if it rebounds, then the economy’s doing OK and people are back to work. People are going to be paying. OK. Now, going to use his numbers. Our numbers were not. Sixty seven percent. Heather, in none of our areas where our number 67 ever. Yep. OK. Just thought I’d put that out there.
Heather: Ninety-five versus sixty-seven. It’s a pretty big difference.
Ron: So let’s use twenty five percent instead of 30. Because the math is super simple. That’s two million bucks. OK. But an $8 million portfolio. All in paying cash. No leverage should yield a person. Eight hundred thousand dollars a year. OK. Eight hundred thousand dollars a year. Just in cash flow. OK. In addition to that, not doing any accelerated depreciation. No funny games, no nothing. Straight line depreciation is another two hundred ninety thousand dollars a year. That’s over a million dollars a year.
Heather: A millionaire based on just passive income.
Ron: Passive income. Not bad. Yeah, but let’s use Mr. Man’s numbers because this is really important. Let’s just say that he did go all in and his eight hundred thousand only collected two thirds. That’s a mere five hundred and twenty eight thousand dollars that he would collect. And that’s only if this is protracted. Right. Because we’re into this a month, for crying out loud. Yeah. Let’s just say it goes all year. That means he only collected five hundred twenty eight thousand dollars. Sounds so. Still gets the two ninety. Still get to two ninety. So we’re back up over eight hundred thousand dollars that he makes this year, which is a ten percent gain in a down market with tenants not paying. And that’s without leverage people.
Heather: That’s without leverage and that’s without the tenant paying down your mortgage. And another third round, that’s no leverage.
Ron: That’s him paying cash and going all in like he said he was. Like he said that whoever suggested that he should do right now, an e-mail say, I’m sorry. What? The email say, Heather. I’m going to need to know real quickly what the e-mail said, because I think it was pretty snarky. And we just talked about the tortoise and the hare. And the reason that the hare got spanked by the turtle was because of hubris. It was because of pride. Yeah. I would never suggest that I know exactly what’s going to happen in the real estate market, but I would also certainly never have called this guy back or send him an email and said, oh, you’re an idiot. But I guess you should have invested. I would have never done that, right?
Heather: No. I was really surprised. I hadn’t heard from him in like six months. He said, trust me, you well, with this crazy COVID, I am so glad I didn’t go in all caps. All in. Can’t imagine how many paycheck to paycheck people aren’t going to be able to pay the next couple of months.
Ron: I wonder how many businesses that he owns stock in. Are not going to be able to make it out of this deal. Yeah.
Heather: I wonder how many businesses we’ve talked about this, but I hate the connotation that people take tenants and make them sound like they’re all these financially irresponsible people living paycheck to paycheck. I think there’s more businesses or people with a lot of money that live, don’t live within their means, right? They live tight. And there’s a lot of tenants that are actually really financially sound. Sure, there’s some that aren’t. But I feel like, I actually feel like there’s more people that have extra savings percentage wise in that category than there are in the people that have high income.
Ron: So, yeah, I mean, I just I get a little bit frustrated and I get a little fired up when people when people do that. You know it would’ve been one thing to email back and go, man. I’m actually really glad I didn’t do this because this is the way I think it was and ask a question rather than make a statement that says that you guys are idiots and I’m glad I didn’t listen to you. But what he said, when in reality, if he would have listened, he would have made a lot of money while his stocks have lost 2 million. So instead of losing, and literally any money, none. Because the real estate market has not dropped yet. Right now the stock market has he literally lost over 2 million dollars? He would have made during this year. And let’s just say that the real estate market does take a dip. Yeah, it’s going to take probably six to 12 months to see that in your property values during which he would have made a million dollars. That means the real estate market would have to drop over 10 percent for him to even be close to even from what he already lost.
Heather: Yeah. And it’s and it’s a secured asset. It’s something you can’t just erase like you can you know, stocks.
Ron: I’m sorry it’s 10 percent more. It would it would have to drop 10 percent more than his stocks did to equal the stock. So, he made an additional 10 percent.
Heather: Yeah, because the cash flow. Yeah, right.
Ron: So. So the real estate market would have to drop 30 percent. And even then, the only way that he actually loses the 30 percent is if he sells. Yeah. Which why would you do that if you’re making 10 percent on your money anyway. Yeah. And it’s even more than that if you count the taxes in there. I’m just I mean this is insane. It’s insane. So I don’t know how he missed this point. I really don’t. Shame on us for not educating him better.
Heather: I tried. We said….I bet I spent four hours on the phone with him and his wife. They’re great people, too. He was never rude or unkind or anything like that. So I think it was just. I think there’s just kind of a disconnect there and a little bit of fear and….
Ron: Probably some probably is a little bit of fear in a lot of frustration that there was $2 million not in his account anymore. Yeah, that would piss me off, too. I am frustrated, too. I hope that everybody listening, though, wouldn’t take that on somebody who had nothing to do with it. I mean, call your stockbroker if you pissed about losing too many hours and then you can’t blame it on him either. If you wanna blame it on somebody, it’s China’s fault that you look to your stocks. Lost two million dollars.
Ron: Yeah. Got the moral of the whole story today. Tortoise and the hare. This guy. And we could come up with a million other ones. Right? Well, and let’s play fair. Let’s talk really quickly about some of the real estate people who were I mean, they were just talking about how they couldn’t wait for the real estate market to fall apart so that they could go and scoop properties up cheap. And while that might be nice, these same people, some of them are the same people who are now complaining that their tenants aren’t paying rent. Yeah, yeah. Etc.. Yeah, some of them are the same people who are now trying to figure out what to do with the properties that they can’t refinance because most of the hard money pulled out of the market. Right. So this whole thing is affecting everyone’s business and it’s affecting it is definitely affecting the real estate market. It is definitely affected the stock market. But let’s not poke each other in the eyeball over it. Right. My guess is that Mr. Man in his stock market account, if he doesn’t pull it out. Hopefully someday it will come back. Right. Hopefully we’re at the bottom. I don’t know. Maybe we’re not. But there is a place for diversification into some hard assets where you actually have some control. Couple of million dollars of that 8 million dollar portfolio. Boy, that would have, that would have really felt good right about now, I think.
Heather: Yeah, I have a hard time not being all in real estate, honestly. So I was just actually talking to my husband yesterday about how we have some short term lending notes. And I said, see, we’re not just in real estate.
Ron: Not just in real estate. I was trying to figure out how to buy oil, literally trying to figure out how do you buy a barrel of oil? Where do you put it? Because they were giving it away for free. I’m beginning to say, yeah, what do you do with this stuff? That’s how little I know about the stock market and commodities. But I do know a good deal. I mean, if. I’m sure there are people out there right now who are going. I was waiting for this to happen. I have massive oil, whatever drums. I don’t even know where you store this stuff. I have massive capacity. I’m buying as much as possible. Bring the tankers. I’m going to stockpile it over here for when the stuff goes back up to just $20 a barrel. Yeah. It doesn’t even have to be 40. Right. And I’m gonna make an absolute killing on this stuff. But alas, I do not know how to do that. I wish I knew where to put the stink. Anybody on here wants to split some money. Yeah, email me back. Tell me that you have storage containers for the oil that is negative, right? And I will go all in with you. Let’s go.
Heather: Somewhere safe to keep it that’s not going to explode.
Ron: I don’t even know what happens to it long term if you buy it. I mean, can you can you store it long term as true? Does it curdle when you take it out of the car? When I was a kid, when we didn’t have enough money to go to the oil change place? I don’t know. I don’t know. But I guarantee there’s a deal there for somebody.
Heather: Yeah, for sure. There’s a lot of opportunity out there right now anyway.
Ron: Anyway. Don’t be prideful people and take a look. Educate yourself. I mean, if if the stock market goes to a certain point where I feel like there’s no way I can lose, I will buy stock. I mean, I’m not such a hater that I’m not going to buy it if it goes way low. I just happen to think twenty-three thousand is low enough, you know, for me. But, you know, if it is low enough for you, then good. Great. I don’t know what’s going to happen with real estate, but if real estate turns into the current oil futures, you can bet that there will be plenty of opportunity for people to pick up incredible deals. We will help you do it. If that happens, I actually don’t think that’s going to happen. But if it does, we’ll still be here. We’ll be picking up deals with you guys. All right. Thanks anyway. Tortoise and hair folks love all this story. Don’t be prideful. If you like this episode, then, well, like it. Give us a review. Share it. Yeah. And you can you can find how to contact us and GetRealEstateSucces.com. We just did a show from some show notes that we got from another guy, from one of our clients, actually. And it was really good. Got some great feedback from that show. If you want us to talk about something other than turtles and rabbits, then just e-mail us in and we will. We’ll take it into consideration. I believe our next one or two shows is going to be from some show notes that we got back from you people as well. So we really appreciate you listening. We appreciate your reviews. Share us with all of your friends. And until next time, Heather, have a good one.
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Aesop’s classic fable of The Tortoise and the Hare tells us that slow and steady wins the race. I mean, you think that that’s the true moral of the story, but I’m here to tell you that this is completely untrue. In no universe anywhere is the tortoise going to beat the hare, so let me retell Aesop’s fable so that you can understand exactly who’s going to win the race.
Let’s say hypothetically speaking, that you put 8 million dollars into the stock market, and the COVID-19 hits, and bam. Where are you at? Are you going to be patting yourself on the back for your 30% loss?
Heather and I walk through the numbers on if you had taken even a part of that eight million and put it into real estate. And yes, while the national average currently says that only 67% of tenants paid their rent in April, Heather and I didn’t see any change. But we’ll even take that delinquency rate into the equation.
A little diversification never hurt anyone, but what I really want you to see is how consistent returns and depreciating assets beat out the slow and steady returns of the stock market.
The true story of the tortoise and the hare comes down to pride. It’s pride that makes you stay uneducated about how real estate can help your portfolio. I can even admit that if the stock market gets to a certain point where I can be certain that I’m going to win, I’ll be buying some stocks. Maybe I’ll even buy a couple of barrels of oil to hedge my bets.
- There is a place for diversification into hard assets where you actually have some control.
- How hubris affects your investing, and why that might make you the tortoise.
- Losing 30% in the stock market is nothing like losing 30% in real estate.
- Tenants get a bad rap as paycheck-to-paycheck people.