030225- Home Solutions Podcast

Episode Transcript

Speaker 1 (00:00):
Buying a home and selling a home shouldn't be stressful. Renters,
homeowners and investors in southern Arizona work with the Win
three team powered by Epic Reality because they match buyers
with sellers like the e harmony of real estate buying
or selling. This is where you'll find what you're looking for.
This is Home Solutions on K and ST with the

(00:22):
Win three team powered by Epic Reality. Now the Win
three Team leader, Andy Keel.

Speaker 2 (00:28):
Good morning, and welcome to the Home Solutions Show. This
is your host, Andy Keel with Epic Realty, and I
am joined today with Red Jackson with Cross Country Mortgage.

Speaker 3 (00:41):
Good morning, read morning Andy, Thanks for having me.

Speaker 2 (00:45):
Glad to have you. Jerry's is he off on vacation
or no.

Speaker 3 (00:49):
He's on a working trip for the company. So they've
got a convention going on at the moment.

Speaker 2 (00:55):
A working trip Bookase, that's what.

Speaker 3 (00:59):
He want tell me anyway, right right?

Speaker 2 (01:02):
So I wanted to just start off this week's show.
One of my I don't even know the right word,
mentor doesn't quite seem the right word, but one of
the people I most admire is Warren Buffett, and he
released his annual shareholders letter this week's it wasn't quite
as impactful as the one that was released last year

(01:23):
when his partner Charlie Munger passed, but nonetheless always look
forward to anything that Warren Buffett has to say. And
I think it's a good gauge for just looking at
the economy in general. And now, what is the biggest,
most well known investor doing right now? And you know
what are some of the things in his company happening?
Is not only what is he saying, but what are

(01:43):
his actions? So with that, I just want to mention
a few excerpts from this letter. I'm just going to
read a few things here. Mistakes, yes, we make them
at Berkshire, And he goes on to say a decent
batting average and personnel decision is all that can be
helped for the cardinal sin is delaying the correction of

(02:04):
mistakes or what Charlie Munger called thumb sucking problems. He
would tell me cannot be wished away, that they require action,
however uncomfortable that may be. During the twenty nineteen to
twenty twenty three period, I've used the words mistake or
error sixteen times in my letters to you. Many other

(02:24):
huge companies have never used either words over that span. Amazon,
I should acknowledge, made some brutally candid observations in its
twenty twenty one letter. Elsewhere it has generally been happy
talk and pictures. So I admire I certainly admire Warren
buffett honesty, his honesty, sometimes his brutal honesty, and he

(02:47):
won't hesitate to call himself out on mistakes either.

Speaker 3 (02:51):
Right.

Speaker 2 (02:52):
He goes on to say, I've also been a director
of large public companies at which quote unquote mistake or
quote unquote wrong were forbidden words at board meetings, and
analyst calls that taboo implying managerial perfection always made me nervous,
though at times there could be legal issues that made
limited discussion advisable. We live in a very litigious society, well,

(03:16):
that's for sure, so you do have to be a
little careful about what you say to your shareholders in
fear of what they might do. In twenty twenty four,
Berkshire did better than I expected. The fifty three percent
of our one hundred and eighty nine operating businesses reported
a decline in earnings.

Speaker 3 (03:36):
That's a pretty good number.

Speaker 2 (03:37):
Back by that.

Speaker 3 (03:38):
Number, Yeah, that's almost a third, so over half.

Speaker 2 (03:42):
Of his businesses actually reported lower earnings in twenty two
fifty three percent. We were aided by a predictable large
gain and investment income as treasury bill yields improved, and
we substantially increased our holdings of these highly liquid short
term securities. He's indicating here he's going to treasuries.

Speaker 3 (04:03):
He's very heavy in treasuries. I did read something else
somewhere else about that too.

Speaker 2 (04:07):
Yeah, and then this kind of goes into just investment
in general, and it's mind blowing the power of compounding.
And we'll see that here with this next section. Surprise, Surprise,
an important American record is smashed. Sixty years ago, present

(04:28):
management took control of Berkshire. That move was a mistake,
my mistake, and one that plunged, one that plagued us
for two decades. Charlie, I should emphasize spotted my obvious
error immediately. Though the price I paid for Berkshire looked cheap,
it's business, a large northern textile operation, was headed for extinction.

(04:51):
The US Treasury, of all places, had already received silent
warnings of Berkshire's destiny. In nineteen sixty five, the company
did not pay a dime of income tax, an embarrassment
that had generally prevailed at the company for a decade.
That sort of economic behavior may be understandable for glamorous startups,
but it's a blinking yellow light when it happens at
a pillar of American industry. Berkshire was headed for the

(05:16):
ash Can. Fast forward sixty years and imagine the surprise
the Treasury had when the same company, still operating under
the name Berkshire Hathaway, paid far more in corporate income
tax than the US government had ever received from any company,
even the American tech titans that commanded market values in
the trillions. To be precise, Berkshire last year made four

(05:38):
payments to the IRS that totaled twenty six point eight
billion with a B that's about five percent of what
all corporate America paid. In addition, we paid sizeable amounts
for income taxes to foreign governments in forty four states.
For sixty years, Berkshire shareholders endorsed continuous reinvestment in that

(06:00):
the company to build its taxable income. Cash income tax
payments to the US Treasury minuscule in the first decade decade,
now aggregate more than one hundred and one billion in counting.
Just it's just mind blowing the numbers that through the
compounding of that company and what he was able to do.

Speaker 3 (06:18):
Yeah, to go from paying zero taxes for a decade
to uh, those kind of numbers, that is insane.

Speaker 2 (06:25):
Yeah, so there's there's kind of a point to what
I'm bringing up here is it's just to me, it's
just mind blowing that the numbers starting with a little
and Warren Buffett's admission that the first couple of companies
both Berkshire and there's two companies, Berkshire and Hathaway and
emerged them together. They're both taxtile mills and they're both

(06:46):
doomed to failure.

Speaker 3 (06:49):
He turned them around and uh obviously moved into different
type of business and has now become a monster. Yeah.

Speaker 2 (06:59):
There's another section here where he said if he paid
the US government a million dollars every twenty minutes for
every weight or not waking hour, but every hour of
the day for three hundred and sixty six days, because
last year was a leap here, he'd still owe a
significant amount of money and taxes at year end.

Speaker 3 (07:17):
Well, he's definitely paying his share of taxes.

Speaker 2 (07:22):
Yeah, So I want to go on to just state
a little bit about what is what is Warren Buffett
actually doing now that we looked at the shareholder letter.
So he ended up buying a few stocks this last quarter.
I believe it was the separate article here what he
was buying, what he was selling. He bought some Domino's pizza.

(07:44):
He bought a company called Pool Corporation, added with serious
XIM holdings a company called VeriSign, bought more Occidental Petroleum,
and he added a new ad to his portfolio this quarter,
Constellation Brands, which is the alcoholic beverage maker. And he's
actually reduced or sold significantly more. So Berkshire's cash pile

(08:08):
is I'm looking at a graph now it's somewhere between
looks like somewhere around three hundred and twenty five ish
billion dollars in cash.

Speaker 3 (08:17):
That is about half of what that fund is worth.

Speaker 2 (08:22):
Yeah, it's just amazing. So this article goes on to
say Buffett has thirty eight holdings in his portfolio. The
top ten holdings make up eighty nine point seventy two
percent of his portfolio, and those are in order of
of value. Apple American Express, Bank of America, Coca Cola, Chevron,

(08:49):
Occidental Petroleum, Moody's Corporation, Craft Hinds Chub Limited, which is
an insurance company, and Davida Health here partners. Of course,
the newest buy was Constellation Brands, but it wasn't even
enough to get it in the top ten.

Speaker 3 (09:07):
So yeah, I actually heard I think last week he
sold a bunch of the b of a stock that
he had. Obviously not enough to move the needle on
the percentages probably, but you know, a fairly sizable amount.

Speaker 2 (09:22):
Yeah. He's been reducing his holdings in Bank of America
and Wells Fargo for a while now. So what does
all this mean? As we go on with the show,
I'm going to talk a little bit more about some
of these economic indicators that are out there. But I
always like to, you know, look at who's the true,

(09:43):
you know, master investor out there, and what is he doing.
He's going to cash guys. He sold a lot of
Apple stock and he did really, really well. And his
reasoning for selling Apple is that he felt that the
corporate tax rate was low enough and wanted to take
some profit. But most of us that have been following

(10:05):
him kind of read a little bit more between the
lines there. So I'm thinking, now we're all wondering, is
there some big purchase coming up, or is he just
feeling like the market's getting a little too top heavy
or or what his thinking is?

Speaker 3 (10:19):
Now? Could we keep your powder dry for opportunities down
the road.

Speaker 2 (10:25):
Yeah, Well, I talk a little bit about some of
these economic indicators coming up, but I just want to
close out this segment with just a couple of just
mind blowing statistics. If you had if you had invested
one thousand dollars in Berkshire Hathaway at the time Warn
Buffett did, what do you think it would be worth today?

Speaker 3 (10:45):
That is a really big number.

Speaker 2 (10:48):
And the answer is sixty two million, eight hundred and
forty one thousand and some spare change.

Speaker 3 (10:55):
It's a pretty nice way to pillay a grand into
sixty two million.

Speaker 2 (11:00):
Yeah, so literally one thousand bucks sixty five years later
could have been compounded in just an insane number. But
putting that in perspective, what did the S and P
five hundred do in roughly the same period. So if
you invested one thousand dollars in the S and P
five hundred sixty five years ago, it would be worth
about three hundred and seventy thousand dollars today. It's kind

(11:20):
of a pittance in comparison to the other number, but
in all reality that's not a bad thing either, because
that's an annual return of ten point three nine percent
over that period, and it's still beat the heck out
of inflation over the same timeframe. So the stock market
returns in roughly that same time period have been ten

(11:41):
point three nine not a bad number, and if you
adjust for inflation, it's still a six point two to
three percent increase year over year.

Speaker 3 (11:50):
So per year, that sixty three million looks pretty good though, Andy.

Speaker 2 (11:55):
Yeah, that sixty three million does look a little bit
more uh more.

Speaker 3 (12:00):
I mean that kind of performance that just almost seems
like unachievable in comparison.

Speaker 2 (12:07):
Yeah, and he's done it. With how many folks that
it should be statistically impossible for that to happen, but
he clearly proved them wrong. I've heard of, you know,
many things over the years. So with that, we are
coming up on a break, and this is Andy Keel
with the Home Solutions Show, and we will be back
after these messages.

Speaker 1 (12:27):
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Speaker 1 (12:50):
Send it right to Garrett Lewis. Hear it on the
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work so you won't have to stress. This is Home
Solutions with the Win three team powered by Epic Reality.

(13:11):
Here's the Win three team leader, Andy Keo.

Speaker 2 (13:14):
Hi, and welcome back to the Home Solutions Show. This
is your host Andrey Kiel with Epic Realty. And I
can be reached at five two zero five three nine
nine five nine one, and I'm again joined by Reed
Jackson with Cross Country Mortgage. And how would folks get
a hold of you Read or Jerry?

Speaker 3 (13:35):
Thanks any they would call us at the office five
two zero five zero zero five six two six.

Speaker 2 (13:43):
Well, we've had a lot of interesting occurrences this week
in the market when it comes to interest rates, So
if you could get us all caught up on what's
going on and where we are and any.

Speaker 3 (13:53):
Yeah, Andy, the big number this month was released today Friday,
and that that was the PCE number. We've all been
waiting for it for the entire month of February and
finally it was released and there was a lot of speculation.
Everyone was hopeful that it would come in on the
number that they estimated and it and it basically did

(14:15):
this morning. The market's been pricing it in all week
and essentially it just showed that there was there was
some fairly sticky inflation, but it's not taking off. So
even though we've got all of this tariff talk and
all the other stuff going on, you know, the inflation
number came in as expected and that actually settled the

(14:38):
market down a little bit. So we haven't seen the
full impact positive wise for mortgage rates yet. It's it's
likely going to take a week to settle in, but
we have definitely seen rates ease about zero point one
two five percent just this week, and I would expect
over the next week or so if we could continue

(15:00):
on the same trajectory, we're likely to see mortgage rates
come down at least another eighth next week However, all
it takes is just one little bit of volatility to
erase those gates. It comes and goes very quickly. We've
had two rate dips in the last nine months or so,
and those were worked up right through July August. It went,

(15:25):
it was trending up, and then it dipped hard at
the beginning of September when they started talking about the
first batch of rate cuts, and then we got a
red cut and it went straight back up again. And
then December we got a little dip again at the
beginning of December, and that it lasted three days and
it was gone. So essentially, over the last six to
nine months, there's been those two opportunities and finally we're

(15:48):
seeing another opportunity starting to appear right now. And if
rates continue on the same trajectory, we're hoping to see
some very low six year rates in the third and
fourth quarter this year. Now, if inflation takes off again,
that might be off the table. If the stock market

(16:09):
starts to suffer and people are investing in treasuries and
so forth, that will be helpful for mortgage rates. So
there's a lot of variables that could come into play
with mortgage rates. But we're definitely on the right trajectory
at this very point in time.

Speaker 2 (16:24):
Yeah. I think I was reading something recently where the
inflation numbers cooled a little bit here, but one of
the reasons for the inflation numbers being a little potentially off.
I was fascinated by an article here and it was
in Yahoo Finance that that was basically stating that in

(16:45):
December and January we might have had a little bit
false euphoria, I guess would would be the maybe not
the right word, but some false numbers because there was
a lot of businesses that were ordering product ahead of
the fear of the tariffs coming into place, so they
were trying to beat the tariffs coming in. So there's

(17:06):
a lot of product being ordered in advance.

Speaker 3 (17:08):
Of that, and that typically happens in December to eighty
because people are you know, they're trying to get rid
of the profits from twenty twenty four, so you know,
they place a bunch of orders right before the end
of the financial year. But then obviously this year, you know,
it gets is a double whammy because they're thinking, hey,
I can I can I could get six months worth
of product in before the tariffs hit.

Speaker 2 (17:32):
Yeah, so I'm wondering how much impact that will have
as we get back to I hate that term, but
new normal and what the market needs to digest a
little bit with what's going on in the form of
all these tariff threats and changes within the government with
if I'm even pronouncing that right, they were fring it

(17:53):
to Elon Musk's dog or DOGE, the Department of Government Efficiency.

Speaker 3 (18:01):
We do love the savings that seem to be at
least getting highlighted. I'm not sure. I'm not so sure
about the whole Let's carve up some of it and
toss it back to the economy myself, but that could
be a little bit inflationary. But it's so far down
the road right now that you know, it doesn't seem
to actually be a blip on the radar.

Speaker 2 (18:22):
Yeah, there was something else that I was looking at
that there was some fear there that there might actually
be so many potential layoffs that it could actually impact
the unemployment rate though, which would actually be a good
thing for interest rates.

Speaker 3 (18:34):
It would because and to be honest, Andy, the data
that we are relying on for the Bureau of Labor Statistics,
it is not terribly accurate they post it's jobs week
next week, So we're just hoping that the number is
in some outrageously positive number, which would make no sense whatsoever.

(18:55):
But it wouldn't be the first time that we've been
in a position where rates are starting to trend in
the favorable direction for consumers and then some ridiculous two
hundred and sixty five thousand jobs created in the month
prior pops up on the BLS report. I mean, it
is very unreliable, and typically we're seeing that that report.

(19:18):
It might come out at two hundred thousand, and then
we find out a year later that it was one
hundred thousand overstated for that particular month, and it's books
the market. It did it all year last year. Every
time we looked like we would doing okay on rates,
the jobs report came out and derailed us.

Speaker 2 (19:37):
Oh yeah, there was one especially where they were off
by such a substantially large number. I think was back
in roughly October, where it was like, oh, the market
was just starting to give us a little bit better rate,
and they said, oopsweet, we were stronger than we thought
by like two hundred and forty thousand jobs or something
like that.

Speaker 3 (19:54):
Correct, And you watched that's going to get revised down
by like one hundred and fifty thousand. That's that's just
been the whole thing. So I'm quietly happy today that
you know, rates are on the right trajectory, but I'm
also nervous that next week is all the jobs data
from ADP, and then on Friday we get the BLS report,

(20:14):
and that thing has just been It's been the achilles
heel of the rate environment because it's unreliable, but the
market still reacts to it.

Speaker 2 (20:26):
Yeah. I'm gonna actually take a minute here and read
a few excerpts of another article, this one again. Yeah,
who financed Tariff threats and uncertainty could weigh on consumers
dragged down US economy government reports suggests. Data released Friday
showed that consumers slash their spending by the most since

(20:47):
February of twenty twenty one, even as their incomes rose.
Americans cut their spending by zero point two percent in
January from the previous month, the Commerce Department said, likely
in part because of unreasonably cold weather. Yet the retreat
may be hinting at more cautioned by consumers amid rising
economic uncertainty. The roller coaster of news headlines emanating from Washington,

(21:12):
d C is likely going to push businesses to the
sidelines for a time and even appears to be impacting consumers.
This was from the US economist at Santander wrote this
particular quote. The reduction in consumer spending coupled with a
surge of imports in January. We just mentioned of companies

(21:32):
staying ahead of the tariffs. There also reported Friday as
companies likely sought thought to front run tariffs led the
Federal Reserves Atlanta Branch to project that the economy would
shrink one point five percent at an annual rate in
the January to March quarter, a sharp slow down from
the two point three percent growth in the final three

(21:53):
months of last year. I almost need to say that again.
The Federal Reserve Atlanta Branch to project that the economy
would shrink by one point five percent at an annual
rate in Q one. So they're saying it's going to shrink.
What's what's the quarter of that three point three seven

(22:14):
versus a you know, two point three percent growth rate
in Q four of twenty four. That that's a pretty
significant change.

Speaker 3 (22:23):
That's huge, and honestly, for mortgage rates. We we do
need to see some some stagnation there because otherwise everybody
thinks the economy is doing just fine and it's growing.
It doesn't seem to be common that people are doing
exceptionally well right now and uh spending all of their
excess money. I see typically the savings rate is going

(22:45):
down for the consumer and credit card debt and auto
I just watched it, watched the video this morning. You
know autos and delinquencies on those autos are skyrocketing at
the moment. Wow.

Speaker 2 (23:02):
I'm a bit surprised by that.

Speaker 3 (23:05):
Yeah. Well, you know, we see a lot of credit
reports and we see a lot of people with seven
hundred dollars a month payments and things like that. It's
and the I mean, people have got to have a head,
a roof over their head, so they're making their payment
on their houses and so forth. But I think that
the number I saw there was about eleven percent increase

(23:26):
in auto payment delinquencies beyond sixty days.

Speaker 2 (23:31):
Wow. Wow. I mean, we all know what happened to
the auto prices during COVID, but I'm a little surprised that. Well,
if somebody went out and bought a car that either
they couldn't afford or you know, a lot of the
COVID effect where people had the extra money. We're buying
things potentially they shouldn't have been buying. Correct, So just

(23:54):
finishing up this report here, Inflation declined a two point
five percent in January compared with the or earlier, down
from two point six in December. Excluding the volatile food
and energy categories, cost prices dropped two point six percent,
the lowest since June, from two point nine dropped to
two point six percent. That they didn't drop by that much,

(24:17):
they dropped from two point nine to two point six,
So sounds like inflation numbers are getting a little bit better,
which again good for rates. And then one last little
item in here. Walmart, the nation largest nation's largest retailer,
last week cited uncertainty about the health of the American
consumer as it provided weaker than expected sales growth estimates

(24:40):
for the year, sending shares lower. So a lot of
interesting things that are going out there and on out there,
and I'm having a little trouble kind of digesting. I mean,
are we going into a slowdown or are we chugging along? Well,
it's I still think there's a lot of conflicting data,
so I'm I'm not sure myself. But with that, we

(25:03):
are coming up on a break. This is Andy Keel
with the Home Solutions Show and we'll be right back.

Speaker 4 (25:08):
Get addicted. What I heard your voice, Well, we get.

Speaker 2 (25:11):
To see the lawmakers' names.

Speaker 4 (25:13):
That look at for you were two cents.

Speaker 2 (25:15):
I just wanted to say that you are spot on the.

Speaker 4 (25:17):
Afternoon Addiction with Garrett Lewis. Garrett Lois, I love your show.
Listen on knst am seven ninety. Tell me what's your
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Speaker 1 (25:27):
He is and talk back with the free iHeartRadio app.
He doesn't want to list your home, he wants to
sell it. This his Home Solutions with the Win three
team powered by Epic Reality. Here's the Win three team leader,
Andy Keel.

Speaker 2 (25:46):
Hi, and welcome back to the Home Solutions Show. This
is your host, Andy Keel with Epic Realty and I'm
again joined with Red Jackson Across Country Mortgage.

Speaker 3 (25:55):
Thanks Andy.

Speaker 2 (25:56):
During the break, we're talking a bit about the stock
market and the economy and what Warren Buffett is doing.
Now I want to take that a little closer to home.
Look at what does that mean? In terms of the
real estate market, and read you were sharing with me
on the break some interesting statistics that you had, and well,
actually I pulled up something. I'll just mention this first.
How this kind of started the conversation is I found

(26:18):
a couple of interesting things here average net worth by
age in the twenties, and to clarify, it's not just
average networth by age, but the median net worth by
age in this article, and I was really blown away
what the difference was like. For example, if the average
someone in their twenties was one hundred and thirteen thousand,
but the median was only seventy six hundred, the average

(26:39):
is there. But even when you get into the sixties,
the average is one point seven million, but the median
is only four hundred and thirty nine thousands, so roughly
a quarter of that.

Speaker 3 (26:50):
Yeah, So that basically says twenty percent of the population
has eighty percent of the Well.

Speaker 2 (26:55):
Yeah, well back to the old Pareto principle of you know,
the twenty percent has eighty percent of the wealth or
twenty percent controls eighty percent.

Speaker 3 (27:02):
Is it's very true that those numbers are virtually right
on that. So it does confirm it.

Speaker 2 (27:07):
Yeah, So as we were talking a little bit about that,
I think you and I ran across the same information
a while back. I don't have the data in front
of me anymore, but I remember looking at it a
few weeks ago where the average homeowner had a net
worth that was insanely different than the average renter, like
twenty x kind of networth you call s in that
one too, really, I do.

Speaker 3 (27:26):
And they did throw out some numbers, and I feel
like it was somewhere in the forty times the net
worth the homeowner versus the renter. And you know, it's
not to be unexpected because you know, if you've got
an expense and you're spending all that money on rent
every year and you're not getting the benefit of any
of that capital appreciation and home appreciation in that market.
And what I think what people think when they're analyzing

(27:49):
rent versus by strategy, They're thinking, well, I'm spending twenty
five thousand a year on rent, I could be putting
that into a mortgage, and if the market goes up
a little bit, that's a little bit money. That's not
necessarily the case. I shared that graph with you that
shows the data for the last eighty three years showing
the annual appreciation of the average house market in the

(28:11):
US by year. Out of eighty three years, there's only
seven years on that particular chart that show negative. The
other ninety percent of those are all positive. And so
that passive wealth growth is where all of that net
value and the net worth comes from. Because you know,
you can only earn so much and save so much
from your job if you've got properties working for you

(28:33):
in the background, generating wealth that you're not paying tax on.
America's great with that depreciation that we get to use
to offset rental income and so forth. It does become
a semi passive net wealth growing strategy, which you know,
I do the same thing. I like rentolds, and I
like having someone else, you know, renting a property from
me and getting the tax benefits for myself and paying

(28:54):
properties down and just participating in this capital growth strategy.

Speaker 2 (28:58):
I'm really not aware of any other business out there
that effectively you can go get your product and lock
in your cost for thirty years, and after that thirty years,
your cost is effectively gone. Yes, the taxes and insurance
are still there, but the once the mortgage is paid off,
I mean what just an amazing way to beat inflation
from a cost perspective, but from an income perspective, Yes,

(29:20):
if we have a dip, the rents could potentially go down,
but historically speaking, I feel pretty safe and pretty confident
that rents are going to continue to go up.

Speaker 3 (29:28):
My theory on that andy is as long as I
finance it cheap enough that I could technically rent it
for ten percent less than the same house down the road,
I will largely always have a tenant that will want
to rent my profit. I go with that strategy when
I'm analyzing properties to make sure that they're cheap enough
that I can afford to random cheap if I needed to,
And to be honest, I haven't really seen it. I
did see this year a little bit where I did

(29:50):
some renewals. The rent didn't really go up significantly on
previous years, but there was a little period of time
there where rentwood up basically every year.

Speaker 2 (29:58):
Yeah, we definitely saw some oftening in the rents right
around when we started seeing the interest rates starting to
edge up. In getting A twenty three, we had a
just great start to the year, and then by about
April May, as the rates started ticking up, we started
seeing like the increases in rents just it's like they
turned off a spigot that they just stopped.

Speaker 3 (30:16):
Oh savage. I mean, the Feds have never lifted the
cash rate as fast as they did in twenty three ever.

Speaker 2 (30:21):
Yeah, that's that's just like a spike straight up on
a chart there, just as you see the raids go
from I think a quarter percent all the way up
to whatever it was five and a half or six
or I don't remember, but it.

Speaker 3 (30:33):
Was just five point seven five I think the range was. Yeah,
and the escalation to get there was just absolutely brutal.
I mean, the mortgage industry, you know, you're trying to
people are out shopping for a house. Then the Feds
step on the cash rate, and the market reacts before
it even happens. You know, rates can go up a
half a percent or a percent in a very short
period of time just based on the speculation that the

(30:54):
Feds are going to step on the cash right again.

Speaker 2 (30:56):
Yeah, and then you know again why I like real
estate so much. I mean, I like the stock market.
I'm invested in the stock market, not nearly to the
extent I am with the real estate market. But now
look at these charts with stock market returns, either by
month or by quarter, and you see some red, you
see some green, You see some red, you see some green,
you see a little bit more green, and you get
an average of about ten percent over the last sixty

(31:17):
five years. You have another chart here that I was
pretty fascinated by. You have a ten year cumulative appreciation
for real estate. Talk about that a little bit. I'm
fascinated by this.

Speaker 3 (31:26):
Yeah, So that kind of looks back. It's a rolling
ten year appreciation of house prices for the ten years prior.
Over that same period, going back to nineteen forty two,
there were some periods of time. Obviously we know things
really ground to a halt in the early two thousands
when we had the GFC. In large numbers, you can
see ninety four percent, one hundred and sixteen percent, one

(31:49):
hundred and twenty one percent, one hundred and nineteen percent.
And essentially that means when they look at the average
house price for the ten years prior versus this current year,
it is literally double the ten years. And it happened
so many times during that period of time, right back
to nineteen forty two. So to pick winning stocks and
to be a warrid buffet. I mean, you have to

(32:10):
be a genius, but to buy a house to live
in because you need a roof over your head and
then participate in that passive wealth growth. Nobody needs to
be a rocket science to do that. It makes perfect
sense to me. And you know this isn't just the
US I've got. I've seen similar data for New Zealand

(32:30):
and Australia because I'm always looking at at opportunities around
the world as well for investing. So you know, like
I said, you don't have to be a rocket scientist
to participate in this obviously. You know, if you bought
a house at the very top of two thousand and six,
it took it took twelve years to get your money

(32:51):
back on that one. But ever since then that that
house prices has increased dramatically.

Speaker 2 (32:58):
Yeah, I think what fascinates me most about this, And
again I wish I could share the visual with the
audience here, but I'm looking at this chart that really
says from nineteen forty two all the way to twenty fifteen.
Because it's a ten year cumulative there's only one one
year that's read on this whole chart and that's two
thousand and six.

Speaker 3 (33:19):
And that's because we lost. How much did we lose
in two thousand and six eighty It had to be See.

Speaker 2 (33:24):
I think we pretty much lost about fifty percent across
the board, and at least in Tucson and Phoenix, and
there was five key markets that really just got devastated
in that time. But I mean across the country, it
was painful, but it was really devastating in some key markets.

Speaker 3 (33:42):
Yeah, we definitely experienced it here. I remember I was
looking in Copper Creek and Ravelly in two thousand and five.
In two thousand and six, I'm like, Wow, those look
really expensive for the age of the home. I'm like,
I just couldn't. I just couldn't see myself paying that
much for it. And fortunately I didn't, and I waited

(34:03):
until twenty eleven, and then I bought two houses in
that neighborhood dirt cheap. And those properties have gone up
one hundred and fifty percent on what I paid for
them in twenty eleven, both of them have.

Speaker 2 (34:17):
Yeah, just amazing numbers. I mean I remember, actually this
was back in March, February and March of twenty twenty.
Bob Zachmeyer and I had I think we had three
properties under contract in roughly February or in March of
twenty twenty and then a lot of the audience may

(34:38):
not remember this or even realize that it was happening
at the time, but before the raids started dropping, they
actually skyrocketed up for about a month there in roughly March,
and the market just ground to a halt. Buyers were
backing out of contracts. It was just pure insanity that
brief spell there, because everybody was so uncertain with COVID

(34:59):
and Bob and I had a conversation. It's like, well,
do we move forward with these contracts, and we both
agreed without even giving it a second thought, Yes, as
long as we have the means of closing our word.
You know, we signed the contract, we're going to close
on the house. We're not going to back out just
because of some financial uncertainty, and we had the financing,

(35:20):
so we closed on them, and looking back, those were
some of the best buys we've ever had houses. One
of them was a house that we just a nice
write off. The MLS bought it for one hundred and
forty thousand, and fast forward a few years later, that's
about a three hundred thousand dollars house today. So some
of these numbers do get a little skewed where we've

(35:42):
had these nice increases, but when you're strategic on what
you buy where you buy it, we've actually had one
hundred percent plus growth rate in the last five years
on several of our key properties.

Speaker 3 (35:55):
So yeah, that totally goes with what we got on
the chat there that you know, if you hold them
for that decade, there's a really good chance you're going
to see some of those gains, except for those those
outlier years where things have gone haywire. So I mean,
if you can write it out through there, and I've

(36:17):
got I did some properties and I totally remember what
you're talking about. With twenty twenty. We were doing mortgages
and one day we would quote someone on a cash
out refinance and then we go to look at the
pricing for that loan in the afternoon and there's no
cash out refinances available in the entire US market. The
banks would turn them on, turn them off, rate to

(36:39):
go up half percent before noon and then come back down.
It was it was absolutely insane in that first March
and halfway through April of twenty twenty.

Speaker 2 (36:50):
Yeah, that was crazy with that. We are actually coming
up on a break. This is Andy Keel with the
Home Solutions Show, and we will be right backed.

Speaker 4 (37:00):
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Speaker 4 (37:44):
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Speaker 1 (37:51):
This is Home Solutions with the Win three Team powered
by Epic Reality on K and st. Here's the Win
three Team leader, Andy Keel, Hi.

Speaker 2 (38:02):
And welcome back to the Home Solution Show. This is
your host Andy Keel with Epic Realty and I can
be reached at five two zero five three nine nine
five nine one. I'm joined again with Reed Jackson from
Cross Country Mortgage and before the break we were talking
just a little bit about real estate and appreciation and

(38:25):
a lot of a lot of fun things there, talking
a little bit about the economy and stock market for
a couple of other things. I ran across there was
another article that I just glanced at that it really
didn't catch my eye until I ran across one little
section that said the top ten cities by five year
income growth. And I'm scrolling down here, I'm like, I

(38:45):
wonder if Phoenix is on here, and Phoenix isn't on here,
but Tucson is, believe it or not, Tucson's actually number four.
The average Tucson wage and twenty nineteen was thirty seven,
six hundred and five dollars. The average wage in twenty
two twenty four increased to fifty three thousand, seven hundred
and fifty eight dollars, or a five year compound price

(39:08):
growth of nine point five to three percent.

Speaker 3 (39:10):
That's pretty good. We did have some maybe we had
Caterpillar come in during that timeframe, so I'm sure they
added some six figure jobs, and maybe Raytheon expanded and
you know the college.

Speaker 2 (39:20):
Yeah, and we've the big employers. Of course, Raytheon a
lesser extent Caterpillar in the college, So I think that
was probably pretty significant to the increase. But rarely do
you see twoson on these kinds of reports, and just
to see them show up number four, I was really
taken back by that. I thought that was pretty neat.

Speaker 3 (39:38):
Yeah, number four in the country.

Speaker 2 (39:40):
That's incredible some of the other things that are happening
in the world. There's one other thing that hits a
little close to home with real estate and investing that
I wanted to talk a little bit about, And I
honestly don't know how I feel about this because I'm
kind of mixed. But this particular article is the Department
of Government Efficiency takes aim at Section eight, will vouchers

(40:00):
lose funding? And I don't really need to go into
this article much more because the headline pretty much says
it all. But if you're a real estate investor out
there that is reliant on that Section eight income, that
to me is a potential red flag to be a
little bit nervous because I don't I don't think any

(40:21):
of us know what's coming there.

Speaker 3 (40:23):
No, And it's it's a real hot conversation to have
when somebody can only come up with a quarter of
the rint or something like that and has no way
of coming up with the other three quarters. Yeah.

Speaker 2 (40:36):
Actually, there is one little excerpt that I want to read.
It says FAHA loans could be affected. One of the
easiest ways for fledgling landlords to get in on the
property ladder has been through FAHA loans. Buying a small
multi family of two to four units using an FAHA
loan and allowing for three and a half percent down
payment is effectively a way to house hack. That term

(41:01):
house hacking is a fancy way of get a roommate,
but that's basically what they're referring to. Or in this case,
you stay in one unit and rent out the other three,
possibly even get a roommate with that one unit, but
before rinsing and repeating to build a portfolio. The Office
of Housing, which oversees the FHA, could face a forty

(41:23):
four percent cut in staff or a loss of about
a thousand employees. So they're saying that we could have
some some interesting things happening across the board there.

Speaker 3 (41:34):
You know that that FAHA strategies pretty decent andy. I mean,
we've I remember back in the day with it was
probably twenty sixteen, twenty seventeen, we had we had there
were more. It just seemed like there were more duplexes
available on the market. It seems like tucsons they're quite
hot to get at the moment. But the duplex loan

(41:55):
is pretty sweet. You can get a borrowed that doesn't
have a lodging but you know, they could qualify with
the three and a half percent down and then we
could count the rent from the second unit to help
them qualify. The three and four unit FAJA deals are
a little more difficult because the property has to be
able to sustain itself with the rent coming in from

(42:17):
the other units rather than the borrower's income. So it
makes a little harder to get a triplexer a four plex.
Four plexes typically work. Triplexes are a little harder to
work with that strategy, but it is a way for
somebody that wants to live in one unit and likes
their neighbors and wants to put tenants in there that

(42:40):
they want to live right next door to for a while.

Speaker 2 (42:43):
Yeah. I always thought that was a really great way
of buying for a first time buyer, especially if they're
trying to cut their expenses down, is to buy a
two to a four unit with an FHA loan. And
it's an amazing product. I really truly hope that does
not get impacted or go away.

Speaker 3 (42:59):
I think no. And the other thing you used to
be able to do it a lot was combine that
with down payment assistance as well. For a first time
home buyer on a lower income, they would meet those criteria.
It's gotten a lot harder with interest rates where they
are right now, But back in the day when the

(43:19):
rates for three and a half to four percent, that
that duplex strategy on a DPA loan was a great
way for somebody to get into the real estate market.

Speaker 2 (43:30):
Oh no doubt that that really. I mean that was
life changing for some folks. So they were able to
get into that market and get into that those properties
were it would have been virtually impossible in any other way.
I wanted to talk a little bit in this last
segment about just another financing option that We've talked about

(43:51):
in the past with Jerry, but it's still not a
very well known product out there. And this is a
product that we use quite frequently, and it's referred to
as a DSCR loan, which stands for Debt service Coverage Ratio.
And I'd love for you to talk a little bit
more about that read but I'll tell you why I

(44:12):
like it so darn much.

Speaker 3 (44:15):
Well.

Speaker 2 (44:15):
First of all, with with government product, an individual can
only have ten loans. Ten government loans in their name,
I believe.

Speaker 3 (44:25):
Is that ten finance properties. If you're buying an investment,
you can you could get if it's a primary residence,
it disregards the the ten finance properties. But if you
are speaking as an investor, yes, you are top that
Fanny Freddy with ten finance properties.

Speaker 2 (44:43):
Right, so technically eleven so you could have maybe twelve.
You could have your primary to buy every year. Yeah,
that'd be pretty tricky, but I mean you're basically cut
off at ten loans typically, yes, So what happens after
that you have to go to some other, some other
type of product. And you know, these DSCR loans really

(45:05):
didn't exist until five six years back in any kind
of there's up. They had other terms for it back
in the you know, two thousand and four, two thousand
and five Europe, and there are very different types of
qualifying back then. But what I like about these products
is they really are qualifying the property far more than

(45:26):
they are the borrower. Yes, And another part of them
that I really like is they don't report typically on
your credit. So you know, with virtually all of our loans,
they don't report on credit. So I like that a lot.

Speaker 3 (45:44):
Yeah, they're a very versatile product and they could be
used in Obviously you're you're using it as a as
a full on business strategy, but you know, to apply
that to the regular person, well, let's say you're a retiree.
You don't you're not at the MD age where you've
got to retire a required minimum distribution from your IRA,

(46:05):
so you don't want to take any of your IRA
money as income that year, and you've got a little
bit of Social security, but you'd like to buy an
investment property. Well, you know, the DSCR is a terrific
option because you could put the terms change based on
a couple of factors, and it's the amount of downpayment
you've got the amount of rent that the property produces,

(46:28):
and also the ratio that is derived from the debt
load versus the actual rent coming in. So for optimal purposes,
those loans love a loan to value of about fifty
five percent and a debt ratio of one point twenty five,
which means if your payment was to two thousand dollars

(46:50):
and your gross rent was twenty five hundred, you would
be at a one point twenty five ratio. So that
gets you the optimal terms, but you can you can
play with those ms. It just changes the interest rate
on those products, but they're super easy to use for
somebody that may be self employed or retired and doesn't
show a lot of taxable income. So I love those

(47:13):
products for that reason.

Speaker 2 (47:15):
Yeah, And putting this into perspective, if we do I
typically like the twenty five percent down, and I'm typically
paying about the same as conventional product with twenty five
percent down in a DSCR loan, And I think that's

(47:35):
where it might even surprise some of the listeners out
there that we can we can use this loan product
and effectively get our rates the same. There is a
catch though, and I want to be very clear about that.
Catch is when we go in and do one of
these DSCR loans, we're purposely taking a five year pre
payment penalty because our intent is not to sell the

(47:57):
property for many, many years to come. So I have
no issue taking a pre payment penalty to get the
rate lowered. So that's my trade off is I'll take
the prepay to get basically a conventional hype interest rate,
and it's pretty amazing, and there's all kinds of other
nice things about that, like not reporting to credit and

(48:19):
and you know, if we want to go higher down payment,
we can get an even lower rate.

Speaker 3 (48:23):
Yeah, and you don't have to take You guys took
like the maximum five year prepay on that option we
just talked about, but you could take a four year,
three year, two year, one year, zero year. So you know,
if if you think, hey, rates are going to dip
and I'm going to get a whole bunch of income
coming in next year and I'm going to want to REFI,

(48:44):
you know, you'd probably take the one year pre pay penalty.
Your rate might be a little bit higher, but then
there's there by the time the twelve months expires, you've
got no pre payment penalty applied to your payoff.

Speaker 2 (48:56):
Yeah, exactly. And if anyone is interested in finding more
finding out more about a DSCR loaner is interested in
that it's for investment properties. But read if you could
share your number one.

Speaker 3 (49:07):
More time, sure, five to zero five zero zero five.

Speaker 2 (49:12):
Yeah. So again, I just that's a particular product that
I very much like. With that, we are coming up
on the end of the show here, so thanks so
much for everyone that listened. I want to just give
a quick shout out for our sponsors and the event
we just had recently at the Hermitage No Kill Cat Shelter,

(49:33):
the Family Fun Day. Thanks for the audience and those
that showed and had had a great event for all
of you out there. So at any rate, we will here.
We'll be on next week and we'll see you then.
This is Andy Keel with the Home Solution Show.