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 am Ron Phillips here with Heather Marchant. 

Heather: Hey. Hey. Yeah. 

Ron: Back with another episode of I mean, I don’t know what to call this, Heather, but, you know, inspired by ridiculous radio guy. Investment radio guy. Inspired by this radio guy. What is that inspired by the IBR or another episode? 

Heather: I mean, we don’t we don’t even really have to, like, get an idea together of what we’re going to talk about when we do these, because it’s so easy. 

Ron: This guy and just like and, you know, here’s the thing is that, you know, we kind of, we love real estate. Right. I mean, the investment vehicle and we don’t hide that. We do. I just think it’s comical when people actually hide their agenda. Right. I have an agenda. It’s to show you guys that real estate’s pretty damn good. Right? I also say I am not an authority on stocks and I certainly wouldn’t play that. I’m one. But stocks are an investment. Yeah. I mean, they are an investor early now, yearly an investment clearly in investment. So this joker is like the gift that keeps on giving. So I’m driving around the car at night. I never listen to the radio. I don’t understand what I think. I took my wife’s car and it was on the radio and was on this channel. This dude pops up against us like the second time this happened. He’s only on a certain time, too, and I don’t even know when they are. But I just luck out and get to hear these super intelligent, the same guy name dude and I’m not outinghim, OK, because that’s just wrong to out somebody who’s trying know because he probably get some business from his radio show that he pays for his time and stuff. It’s like an advertisement thing. Right. Which is cool. 

Ron: I’m playing with that too. I’m kind of making light of it at the same time. I think, you know, good for him because I’ve paid for seminars. It’s the same thing. He’s just paying for seminar on radio. Yeah. That said, if you’re gonna say things, it’s kind of important that you say things that are want accurate. Yeah. Intelligent and not everything he said is not intelligent. He’s an intelligent guy. But this kind of thing irks me anyway. So he gets on. And the reason this irks me is because there’s a lot of financial planners out there. They’re the minority, but there’s still a lot of them out there that understand that real estate is a really good investment and they don’t tell their clients not to do it. Like, I wouldn’t tell any of our clients, just sell all of your stock and don’t put money in the stock market anymore, ever. I mean, that’s ignorant on a level that I can’t stomach right now. Personally, I don’t own stocks because I don’t understand it. If I spent the time to go and understand it and I want to do invest in that, then that’s fine. 

Heather: I think if you don’t understand it, then you’re just gambling, right? Like, if it’s just an investment that you. I was reading Rich Dad Poor Dad this morning and it was saying, you know, if you’re if you’re going to invest in something and just pray that it works out, then you weren’t smart. Right? You’ve got to understand what you’re doing, what you’re investing in. 

Ron: Yeah. And that leads us to investment guy’s comment. Right. So investment guy is trying to explain to people how he does a plan for them, right? Yeah. Which is at least he does that. I mean, that’s good because a lot of these guys don’t even do that. They just sell you something. Right. So radio guy goes, OK. So the first thing we do is we take into account so security. And he goes on a big diatribe about Social Security and when you should take it, which I think is laudable because there’s different things that happen when you take your Social Security at different ages and all that kind of good stuff. Right. So he goes through a little bit of a diatribe about that. Then he says, hey, then we got to like include pensions and retirement funds from your job. And then and then he kind of off the cuff, he said. So he rolls this together, right. So first you do Social Security and then you do pensions. And then if you have a rental property, that’s great, that’ll help. And then but ultimately, it’s your investments that will make it so that you can retire. 

Ron: You know, maybe it’s just because it’s a little offensive to me that he didn’t include me. All he would’ve had to do was change his sentence up and make it, you know, intelligent and not offensive to a guy like me. Yeah. And what should be offensive to everybody else on the planet is, you know, pensions and then your rental property investments and then your other investments. Right. The ones that we’re going to talk about today. Yeah, but you didn’t do that is like. Yeah. And your rental property. And that’ll help a little bit. And then you’re investing. Ultimately, your investments will make it so that you can retire now. So what I’m trying to. And I should call in one of these days, just ask him, like, I just want to know what the hell the definition of a rental. Nobody is. That’s I just I’d like maybe. Is it because obviously it’s not an investment, so I’m not sure what it is at this point? You know what? What should we call it? 

Heather: Yeah. Well, I mean, an investment, is it when you’re investing money for profit. Right. So if it’s if a rental property is not bad. What are you doing? Just like the goodness of your heart letting giving someone a place to live. 

Ron: And here’s the. So here’s the rub. Right. Here’s the rub. There is a misconception. I know we’ve been over this a million times. Just indulge me because the dude pissed me off. And so now I have to talk about it because this is my only outlet to actually go through this. Right. So the problem with this is, is that there’s a fundamental lack of understanding of what a rental property should actually do. Yeah, because in the stock world, you have yield, yield or gain. That’s all you have, because most people don’t buy dividend producing stocks. And even if you do, nobody actually takes the dividend. It goes back into the thing you just counted as part of your return. Right. So it’s all just a game. Yeah, well, the challenge is that with a rental property, it doesn’t perform the same way. It’s entirely different. Where if you just look at the gain from the property and then you take into account that around here, you know where I live, the real estate’s pretty expensive unless you get out into the hinterlands. It’s pretty expensive. It’s harder to make properties cash flow. And so I think everybody in a lot of cities, I think in the majority of the country, just people think that if you buy a rental property, you buy it because it goes up in value. 

Heather: Yeah, I hear that a lot from people that that’s why you own rental property. And it’s just one of four reasons why you own rental property. And a minor one. 

Ron: And I mean, it could be it could be a game changer for you. So let’s be honest. If you get some really good appreciation on a property that is a game changer. You know, and we’ve talked about this before about our clients who get to do 10, 30 one exchanges with massive amounts of money because they bought and the properties went up in value. Right. And then what they do is they’re able to double down or triple down on whatever their cash flow is. That’s an aside that happens if the market gives us the gift of appreciation. It doesn’t necessarily happen all the time. And as a matter of fact, sometimes it flatlines and sometimes it goes down just like the stock market. And if you’re a stock guy, investment dude like this. 

Ron: Like this guy is, you just assume that’s what assets do. That’s what your investments do. Right. And he doesn’t understand that there are four returns, three of them that happen in spite of what the actual market value of the property is or does. And that’s the problem with these jokers. All right. It would be nice if they would just wake up some day and go, hey, beat these. This isn’t like a nice little thing that you might have. It’s an investment as a part of your portfolio. We talk to our clients, Heather. We don’t say your stock account is this little thing that sits over here. And it’s just a I mean, it’s kind of an annoyance if you have it. But your real estate investments are the only ones are going to make it ‘til you retire. 

Heather: Yeah, I usually say, well, how is it performing? You know, and lately for the last several years, it’s been great. You know, my stock account’s doing great. So not necessarily since COVID-19, but still I mean, I don’t like dog on their stock investments and tell them they’re a bad investment. 

Ron: No, nor would I say at this point in the game what I say to sell them and lock in all of your losses. Right. So this is the thing that just if you’re a person who’s supposed to help people manage their wealth, if you’re a wealth management person, right. That’s your gig, then it should at least beg of you to be knowledgeable enough to know that one thing is an investment or isn’t an investment. I mean, that should be like a 101 class. I would think. I would think. Well, I think I know that about stocks. And I’m not a stock guy. I also know enough to know about stocks, to know that if I sell when the market crashes 30 percent, that I’m locking in my losses at that point if I sell, and thus losing the 30 percent for sure, I’m going to lose it. 

Heather: Yeah, it’s that self-interested sales model, you know, that it’s all about what’s going to make me money. And so if I’m not going to make any money telling my clients to go buy real estate. Then I’m going to dog on it and say that it’s not really an investment. Just might help a little bit. 

Ron: Yeah, but here’s the problem with that. Intelligent people see past that. You know, if an intelligent person sits down across from either one of us and we have the audacity to tell them that the stock market is a horrible place to invest when they’ve when they’ve got half a million dollars that they’ve made sitting in their stock account, they’re going to think that I’m an uneducated moron because. Obviously, they’ve made money in the stock market. Now, maybe I could show them that real estate performs better than the stock market for today. I’m sure I could do that. But does that make it so you shouldn’t have any stocks? Does it make it so you shouldn’t have any life insurance products? Does it make it so you know, you shouldn’t have any other assets outside of the two that we’ve just talked about? I mean, there’s some really cool oil and gas things going on right now that give massive tax benefits. 

Ron: You know, there’s some really creative, cool things out there that you can do, that you if you get educated about crush the stock market and are really good rivals with real estate. And if someone asked me about them, I would say, yeah, you know what? I’ve heard about that. And I actually know a guy who does it, but I don’t know anything about it other than the fact that he seems to be killing it, doing those. Right. I happen to have a friend who’s doing some oil stuff right now. That is I mean, it is even though oil is down. The dude is making a killing, especially from tax perspective. So, I mean, look, if you’re going to get on the radio and you’re gonna pay for air time. I understand you want to sell some stuff, but when you get on there, in the end, this should be for everybody, no matter what your widget is, if you dog out your competition to the point that it makes you look on knowledgeable about the subject. It counteracts what you’re trying to do. And I agree. I agree isn’t work. So, you know, who knows? Maybe Mr. Man is gonna find our podcast, Heather, and we will save him from himself. I don’t know. And if he does, let’s just really briefly explain why it is that real estate is an investment. 

Heather: Yeah, that’s what I was say, because I think sometimes it’s just a misconception. Sometimes, of course, it’s meant to dog real estate. But I think sometimes it’s just a misunderstanding of the differences between stock and real estate. 

Ron: So, yeah, I don’t think guys I mean, he obviously wasn’t trying to dog real estate because he said it was nice. 

Heather: Yeah. And he mentioned it right? 

Ron: Sorry. Well, he was talking about a specific person. So he had to mention it because they had a rental. They had rental properties. But he, like I mean, he did say it was nice. Which was, you know, I mean, that was kind of that was kind of him to say. But again. If I were that person and I had rental property and it had been returning good for me, just like the people who come to us with their stock portfolios that have been returning, you know, pretty decent returns. And I said, well, that’s nice, but it’s this over here that’s actually going to make it so you can retire. They will look at me like I’m a moron. It’s a moronic thing to say. Yeah. So let’s really quick let’s go back over this really quick and just see if we can. I mean, I feel like saying help this guy out. Maybe I’ll send him a e-mail to the episode like, dude, stop it. Seriously. This is ridiculous. You’ve got to stop doing this on the radio. 

Heather: Well, I Googled investment for a definition and it said the action or process of investing money for profit or material results. So I don’t know how. Yeah, I’m not sure how you can say it would essentially be that you’re doing it for fun, like buying a rental property for fund or giving someone else a place to live. Right. Not necessarily looking for any sort of gain or profit. It would not make it an investment.

Ron: The other reason that guy would have said what he said is that he doesn’t understand that they actually do make a return. Other than what market cycles are. Right. Because right now we’re I mean, both markets have been going up for over a decade. Right. So stock market, real estate, Mark, both been going up so you could make an argument. The right now is not potentially the best time to be buying real estate if you don’t understand it. Just like I could make an argument that, you know, at the top of the market, like I was actually telling people, is the wrong time, be buying real estate or buying stocks is the same thing. There’s one, two, three really big differences. There’s three really big differences in the two of those, though. So if I have money that I need to invest and I look at two charts and one, I was the real estate market and the other one is the stock market. And they both gone up for 10 years. 

Ron: I have to choose between the two of those. And those are my only two options. Well, then I have to take everything into account. And so if we take into account yield, both of them have a substantial chance of going down if the charges have been going up for 10 years straight. That’s just true. OK. So then I have to look at what else what else do I get from these? Well, what do I get from stock market? Jack squat is what you get, right. You get a roller coaster ride, jack squat. You just have to strap in your seat belt and hope that everything comes back at some point before you need the money and you have to cash out and actually pay for some things. Real estate, Heather, is not the same thing. No. You still have the same roller coaster ride potentially. Right. 

Heather: With your yield or your gain. But you also you also have the ability to affect change in your investment. You can be able to call the shots and make something better for yourself. Turn the ship around, you know, fire somebody if they need to be fired. 

Ron: Stop it. You actually get to control the company, huh? I don’t think you can do that in the stock market. I mean, you have to buy a lot of stock to be able to have that kind of pull, you know, so you can effect change in the property. 

Heather: Yeah, you own 100 percent of it. It’s yours. It’s not like owned by you own a small portion. 

Ron: Stop the presses. Now you’d have to buy a lot of stock, to be able to do that, to right? To own a hundred percent of it. You’d have to buy 100 percent of the stock. I don’t think most people can do. Yeah. Again, not apples to apples here. 

Heather: Yeah, you can finance it. 

Ron: Stop it. So you can leverage the thing too. Yeah. And what good does that do you if you’re just on a roller coaster ride other. 

Heather: Well you have other rates of return in owning, in owning real estate.

Ron: That’s really not fair. I know, right. It’s not fair. 

Ron: Not but it’s the nice little it’s does this is the nice little aside investment. And this nice little aside investment has a few other really cool qualities. And since you can leverage it, someone else is paying for it. But who? Who pays for the investment? 

Heather: Tenant you’re we used to call them our wealth accelerators the tenant who is making your rent, making the rent payment pays your mortgage. That rent payment pays your mortgage, gives you more equity in your property. 

Ron: OK. So let’s just timeout for a second. We’ve got a person in the asset. Right. So let’s consider the business like a stock. Right. So you bought some stock. So in this case, in this scenario, we bought 100 percent of the stock. We control it. We can actually do things to change the value of it. But, for whatever reason, there there’s somebody in the company that is willing to just make payments and pay for 80 percent of the price of all the stock that I own, which is really cool. 

Ron: I only had actually paid for 20 percent of the 100 percent of the stock that I own while someone else pays for it over time on fixed payments that right now are so freaking low that it’s like we could short the dollar. That’s been essence what we’re doing. According to Warren Buffett, we’re shorting the dollar. Pretty cool. Pretty cool, pretty cool. But we haven’t even gotten to the best part yet. Those are all very, very cool things. But this cool person that’s sitting in the property, well, what do they do for us? 

Heather: They pay rent. 

Ron: And what does rent do? This is so fun. 

Heather: They’re going to pay your mortgage payment plus give you a little bit extra at the end of the month.

Ron: Stop it. So I actually get a dividend. You get a dividend, I get a dividend every freaking month, which is fantastic. That dividend just happens to be generally speaking. And unless you buy in an area, you shouldn’t north of 10 percent cash on cash return. Yeah, just an additional bump. Now, I don’t know. I don’t know any stock that produces a 10 percent dividend on a consistent basis. I don’t know any that do that. It’s true. Certainly I don’t know any that do that and have a decent chance of having some growth. But wait, there’s more. 

Heather: Well, having a stock that you can take some depreciation against it and have some tax savings. 

Ron: Man, how cool is that? Like, you own 100 percent of the stock. Someone else is paying for it while they’re paying for it. They’re paying you for the opportunity to just be there. You just work there, right? Just the paying for the opportunity to work there. In addition, the government allows you to depreciate the value of the stock. Unbelievable. So now I get to use the write offs from this really cool tax incentive that I have against the income that this cool person sitting in the company is paying me to be there. 

Ron: I get to get that income but aren’t paying taxes on it because I get this other cool thing over here called depreciation that allows me to write off against it. So now you don’t pay any taxes on the income that I’m getting. I don’t know any stock where you can do that. I don’t know where you can do that here. 

Heather: And it’s I mean, even with we haven’t even talked about cost segregation in this, but accelerating your depreciation is just not it’s just not even fair to stock. It would hurt its feelings.

Ron: It’s disgusting how awesome it is. 

Heather: Yeah. Now, I was going to add to that someone’s going to pay it off for you too, right? If you’ve financed 80 percent of it. Eventually, that person sitting in the seat is also going to pay enough that it’s going to pay it off. And then you have all of that, you know, 80 percent that you get to keep too. That you didn’t pay for. 

Ron: I mean, so there’s four returns, people, which we just made light of, this poor guy who doesn’t understand real estate at all. It’s a rental property is a tiny little bit more than a nice little thing that isn’t an investment and that probably won’t help you retire. It’s a little more than that because you not only get the gain that you would get from a stock any way, gain or loss the cool roller coaster ride, you still get that on both ends. If we’re being fair. But you also get cash flow, which is cash on cash return. You get principal reduction paid for by someone else, which is a return. You get tax benefits from our awesome government, which is also a return. And they can be massive depending on how the tax code gets changed. Right now, they’re pretty dang cool. So all of that is a big, huge fat return. P.H. Fat. It’s pretty hot and tempting. It’s it is P.H. Fat. 

Heather:So let’s talk for a second just about the variable expenses. So in here, we’ve shared all the returns and there are a few things that can offset those returns and bring them down potentially a little bit, vacancy and maintenance. 

Ron:So when the properties, it was a good time. What are we going to share the downside to real estate right now? Yeah. Stop it. Mr. Investment Man, do the same thing on his show with his stocks. I mean, I think it’s the only way to do it. Probably. Probably. All right. Go ahead. Sorry. 

Heather: I think it’s smart to prepare people for what the what’s possible on both ends, the positive and the negative. Right. Because real estate has a huge positive in there. I think there’s a lot of misconceptions and that’s why people don’t do it. But I think there’s also a lot of fear of the negatives why people don’t do it. Sure. So I don’t know of any. So just tell me what they are. So the vacancy that you could have a tenant move out. Right. And the property could sit vacant. I had this happen on one of mine that it went vacant just before Thanksgiving, like the week before. Rough times. I had a really good property manager working on it for me. So I actually turned down two tenants in December for a ridiculous amount of pets. And so I ended up having a tenant in there the first week in January. 

Heather: And so I had that almost 45 day window where there was no tenant in the property. Right. So I was paying the mortgage payment during that time. Now, this is a small property. So the mortgage payment was like five hundred bucks. So it didn’t really hurt that bad. But, you know, if you have several properties vacant at the same time, you could potentially have a month or two with negative cash flow. Right. You don’t get your dividend. But the other the other thing on that, too, is if the tenant moves out and you have to do a bunch of maintenance, you’ve got to put all brand-new carpet in the house and you have your tenant security deposit to offset. If they did damage to the property. But sometimes you have to reach into your own returns and pull that money back out. So that does happen. But, man, over time, it’s still it’s still is way, way powerful to have four rates of return because you can, you know, have some write off potential on some of the maintenance you do to the property and things to help offset to. 

Ron:So you’re mitigating your losses. Yeah. I think, you know, to Mr. Investment’s credit, he does talk about mitigating risks. Right. By diversifying your portfolio, which I agree. I just happen to think that real estate’s a great way to diversify a portfolio. Right. It’s a fantastic way to diversify a stock portfolio, get into another asset class. Right. And then there’s ways that you can diversify inside of real estate as well. So you could be very diverse. You can be diverse in real estate and diverse in stocks and you can spread your risk. Right. Cool thing about diversification and real estate is that you still have a very high upside. Usually when you start to diversify in the stock market, you’re just leveling out what your returns are by having high rate of return stocks and super safe ones and things in the middle. 

Ron:By the time you get done with all that, you’ve kind of you just basically flattened off all the potential to have really good returns where in real estate you can you can do that, mitigate risk and still have significant returns because you’re piling up four instead of one on every single asset that you have. Right. And that’s not to say that you shouldn’t own any stocks. Again, that’s not and that’s not what this is. I mean, I have a son and a daughter who owns stocks. I don’t own any. And when I found out, I kind of felt like a failure of a parent. Not just kidding. I’m just kidding. I’m proud of them for investing. Right. Especially both of them decided to invest when this when the market had that crazy dive. They both got in and incidentally, they bought stocks that they thought were really trashed at the time that they thought would come back. Which was brilliant, you know. 

Heather: I think as parents training your kids to see the potential and the opportunities available is I think the smart, smart financial education comes in. So I would call that a win. 

Ron: Yeah. And neither one of them had enough money to go buy another real estate asset. Right. So they did what they had the ability to do, which is. Which is really, really smart. So I’m not a stock hater, but I am. Let’s at least be fair about, you know, what we say and when we say it, especially if we’re going to if we’re gonna get on a medium where we can, you know, reach a bunch of where we can reach a bunch of people, let’s at least be fair about it. All right. So I’m sure that at some point I’m going to stumble upon this dude again and he will probably provide yet another episode. The Get Real podcast, because he just can’t help himself. I don’t think. 

Heather: But I loved it. So I like revisiting the four rates of return of real estate all the time. 

Ron:So no problem. A little tiny bit of business. This is a little tiny bit of business in there. So if you guys out there, if you run a business, when people come in to buy whatever your widget is. Don’t dog your competition. Tell everybody why your stuff is so great. If you do a good job and your stuff really is better than the competition, then people will figure that out anyway. You don’t have to. You know, if you’re the Ford dealership and somebody comes in and they were talking about they were just down at the Nissan dealership, you don’t have to dog Nissan out by name. Start telling everybody about all the horrible things about Nissan and then try to sell Ford. Tell anybody why you’re Ford is better than the Nissan. Tell them why they would want that particular widget more than they would want the other one. Right. 

Ron:So if you have a podcast or if you’re on Facebook or whatever, don’t get on and take some guy’s name and trash it all over the place and expect people to do business with you. That’s not the way it works. Hopefully you guys can tell the difference, right. I didn’t out this guy’s name, but the concept of what he’s doing is basically doing that. He’s downplaying everything about something else to make his thing look better. That’s. You don’t have to do that. Right. Just lay it out there. And if you’ve got a good product, then people don’t have to buy all of yours. You know, I have a Ford. I have an Audi. I have a Harley. I have a new Cottee. None of them have to be better than the other one except for mine. Has to be better than my wife’s is the only dance only difference. Other than that, nothing has to be better than the other one. Just I will use them for different things. Right. So don’t do that because it’s a punk thing to do. Mr. Investment Man on your show, real estate’s just a good thing. 

Heather:I love watching you riled up. It’s my favorite. 

Ron: All right. So that’s it, folks, man. Just like us. Like us. Share us. You know, don’t keep us a secret. We want to help as many people as we can understand the benefits of real estate. That’s right. And with that, we will leave you until next week. 

This has been the Get Real podcast to subscribe and for more information, including a list of all episodes, go to GetRealEstateSuccess.com.