051825- Home Solutions Podcast

Episode Transcript

Speaker 1 (00:00):
Good morning, and welcome to the Home Solutions Show. This
is your host Andy Keel with Epic Realty, and I'm
joined today by Bob Zachmeyer.

Speaker 2 (00:10):
Good morning, Bob, Hey, Good morning Andy. How are you.

Speaker 1 (00:13):
I'm doing great? How about yourself?

Speaker 2 (00:15):
I am good. You know, I wanted to start this show.
Last week we talked about the real estate market, and
you know the numbers that have come out and we
have some updated I got a chance to update my
charts and kind of look at some observations, but I
wanted to share. I have a coaching business, and I
have a gentleman up in Chicago who had this great idea.

(00:36):
He said, hey, I'm making money from real estate notes.
And for those that you haven't listened, I do a
lot of private lending. Over the years, I've done over
six hundred private money loans. And a lot of people
think that if a person can't get a loan at
a bank, they must be a bad person, they must
have bad credit, they must have some reason why the

(00:56):
bank won't give them a loan. But shockingly, I mean,
if you started your company less than two years ago,
the bank won't lend to you if you don't get
paid on a regular basis, like you have sporadic income.
You get paid when the job's done, and you might
have months where you didn't get anything that and the
banks don't like that either. But at the end of

(01:17):
the year, these people typically make far more than the
average person. They just make their money in spurts. So
that is sort of what we've been doing. We've got
our entire retirement funds invested in real estate loans, and
you know, during COVID, we got paid during the last
several years of you know, a crazy amount of appreciation

(01:41):
and devaluing of the dollar, where you know, everything went
up in value and you're on a fixed income. You
can't afford that. Well, you know, we can't afford to
be in the Wall Street casino when you're retired. So
this is something that we decided we're going to invest
in real estate notes. So this gentleman up to Chicago
goes to the Catholic and he wanted to help other

(02:03):
people in his congregation learn how to lend and also
you know, then basically give money back to the church
for that. So I was talking with him about this
is a you know, let's just pick a number. I said,
what is the lowest note that you have, and he said, oh,
thirty thousand. I said, okay, So let's just say you

(02:23):
took that thirty thousand dollars and you had it in
the bank, and we're going to give the bank more
credit than they deserve. But let's say that you earned
one percent. Most of them are a fraction of that, right.

Speaker 1 (02:33):
Andy, Oh, definitely.

Speaker 2 (02:36):
So that would be three hundred dollars a year that
you would make if you're making one percent on your money,
and twenty five dollars a month. I mean, what does
twenty five bucks buy at the grocery store anymore? One meal?

Speaker 1 (02:49):
Yeah, I don't think you get a full meal for
twenty five.

Speaker 2 (02:51):
Anymore, exactly. So, you know, with everything going up, I mean, basically,
over the last four years, a dollar has turned into
eighty cents because of inflation. It just, you know, ate
everybody's lunch. And a lot of people, especially those in
their seventies that retired more than a decade ago, all
of a sudden, all the things that they could afford,
they couldn't afford anymore, and they're having to cut corners.

(03:14):
And I've met with many people that can't go visit
their grandchildren even on a car trip because they don't
have the money for gas. So what if instead of
making twenty five dollars a month, what if you could
invest that same thirty thousand and earn a seven percent
rate of return on a house mortgage that's basically backed

(03:37):
by the home. And this is what Camille and I do,
and this is what I teach people all over the
country they can do. So this is not a broadcast
to solicit funds. I just want to share with you
that this is what we are doing. And then he
has also been doing it, funded over one hundred notes himself,
and he wanted to go share it with the people

(03:57):
in his church and help people in his community, church community,
and basically the people that want to buy a nice
home instead of an old, dated home that needs a
bunch of repairs. So if you invested at seven percent
on thirty thousand instead of one percent, obviously you return
it seven times more So twenty one hundred dollars a

(04:18):
year versus three hundred dollars a year, which is one
hundred and seventy five dollars a month versus twenty five
dollars a month. So, Andy, you you have loans that
you've carried back right, absolutely, And we've financed a lot
of properties over the years with private money, people using
their retirement accounts to fund the properties, and several that

(04:42):
you and I own together are funded with private money.
And people say, well, Bob, you know you and Andy
have credit scores well over eight hundred, why are you
going to private individuals for loans? And what's your answer
to that question?

Speaker 1 (04:55):
Andy, there's actually a number of good answers to that question.
They're all they're all part of the equation. It's it's
I don't know. There's something just very gratifying about being
able to help out a retiree and get them a nice, stable,
fixed income. That's that's life changing. That that is the
one thing that I would say is the most empowering

(05:15):
thing to me. But there's other factors involved. Where we're
dealing with an individual, not a bank, we don't have
to deal with the you know, the customer service bs
of making a payment. I mean, some of the stuff
we deal with in making the payments that we do
is just insane. And it's so much more gratifying to

(05:36):
work with an individual than a a big box lender.

Speaker 2 (05:41):
All right, So here's a hard working business owner that
was turned down at the bank has a significant down payment.
When I say significant, if we're looking at a you know,
a two hundred or which or hard to find, but
there are some two hundred thousand dollars home, the bare
minimum that they would come down with a down payment
would be fifteen percent. And the maximum that we let

(06:05):
our loan partners invest is seventy percent of their property's value.
So on a two hundred thousand dollars loan, the most
that our lending retiree partner has is one hundred and
forty thousand dollars invested in a two hundred thousand dollars home.
So anyway, what's the reason that we don't go to banks.
One we can close usually within days instead of going

(06:28):
through an entire bank process. To the closing costs and
fees that are related to borrowing a loan at a
financial institution are far less. As a matter of fact,
all of the fees put together represent about one percent
instead of the three percent that most people quote as
buyers needing closing costs. But back to this thirty thousand

(06:51):
dollars example, if if you were earning twenty five bucks
and you couldn't make ends meet, you had no money
to donate to your favorite charity. If you took this
same exact amount of money, put it in something paying
monthly payments, earning seven percent, your twenty five a month
would go to one hundred and seventy five dollars a month.
What if you turned around and gave not ten percent

(07:13):
to the church or to your favorite charity, but twenty percent. So,
I mean that's more than most people tithe, But twenty
percent of seventeen thousand, five hundred would be thirty five thousand.
So now the charity, your favorite thing that's near and
dear to your heart, is now getting thirty five dollars
a month that you never had before. You were only

(07:34):
collecting twenty five dollars a month, and now you're getting
one seventy five. You give thirty five, which is twenty
percent to your church or favorite charity, you have one
hundred and forty to spend instead of twenty five. And
that's the difference of one hundred and fifteen dollars a
month for every thirty thousand dollars invested. I mean that's significant.
I mean when you say, what can twenty five dollars

(07:55):
buy not much, But what can one hundred and fifteen
dollars on every thirty thousand dollars by now you've got
you know, a water bill paid for, you got you
know whatever, Look at your budget, whatever bills you have,
there's that much more going to it. So I can't
tell you that I've trained over thousands of people. I mean, hell,
I've had over thousands of people who attend my conference

(08:16):
in Tucson. But this is something that most people don't learn.
You don't learn in school that you can be a lender.

Speaker 1 (08:25):
Yeah, and you know you mentioned that I know who
you're referring to, and obviously we're not going to mention
names on the radio. But the person in Chicago was
actually one of the key funders for one of our
land projects that we were recently involved and we bought
just sh I have three hundred acres out in Solo
and we just ended up selling that the rest of

(08:47):
that parcel off about two months ago. And this particular
lender pretty much made this deal possible for us because
we put over fifty percent down on this on this
parcel of land, private financing and banks don't like lending
on vacant land. There's some out there that will, but
very few. So we created what I consider are just

(09:09):
a wonderful win win situation for everyone. There's just a
ton of equity in the property, made a great note
out of it, and just it worked out wonderful for
everyone involved.

Speaker 2 (09:20):
Yeah, and I actually had a trust that had a
bunch of family members and then invested in that property
and we just got paid off on that as well.
And so anyway, this is something that Andy, how did
you create value? You bought land and it was eighty
acres altogether.

Speaker 1 (09:39):
It was two hundred and ninety three acres technical.

Speaker 2 (09:42):
One hundred ninety three acres, and did you do a subdivision?

Speaker 1 (09:45):
We did what was referred to as a five split
or a minor land division.

Speaker 2 (09:50):
Right, which is not a subdivision. Anything more than five
would be a subdivision. You need a public report, So
a five split, and then you sold five separate parcels
or did somebody buy more than.

Speaker 1 (10:00):
Well, then we sold one forty acre parcel almost right away,
and we sold that forty acre parcel almost for what
we paid for the whole thing, and we paid down
some of the note when that happened, and that was great,
and then we kind of were stegnant for a couple
of years. Which I've shared this in a past episode,
but I'll share it again because it's really one of

(10:22):
those things. We can't make this stuff up in real world.
You just can't predict things like this. The forty acres
we sold. The folks that bought that intentionally wanted to
split it again and down to eight acre parcels, and
I can't do it because the way Arizona law is written,
me an entity I touch. It has to be a true,

(10:43):
honest to goodness arms length transaction to do a second
five split, or that's a felony. We're not playing here, folks.

Speaker 2 (10:49):
Right, Yeah, you can't get a bunch of people you
buy it and split it five and then the other
five partners will split. There's five and now, and that's
called a wildcat subdivision in the State of Arizona Department
of Real Estate. Actually wouldn't be the ones coming down
on you.

Speaker 1 (11:02):
Yeah, So that would be a really naughty thing to do.
So obviously we're not going to do that. So we
left plenty of meat on the bone for the next investor.
They came in, they did a split, and they were
selling off their eight acre parcels. Well, we were kind
of wondering and we had it listed with a realtor
and soolo, and we were all kind of scratching our heads, going,

(11:22):
why aren't we getting any traction? Well, there was a
rancher that was kind of using the land up there,
and he was scaring off all our buyers, including like
he took his caterpillar and rolled massive boulders into the
road and it only accessed our property and the one
next to us, but he literally blocked him off and
he was scaring people away. Wow, how do you overcome that?

(11:44):
And I have to give the other folks and the
agent that was involved with this a ton of credit.
They instead of taking a hostile approach, they took a
very different approach. They bribed him by selling one of
the eight acre parcels to him at a really deep discount,
under the under the understanding that he wasn't going to
bother our buyers anymore. And then right after that happened,

(12:04):
we sold all our parcels.

Speaker 2 (12:06):
Wow, that's a great, great story. So anyway, the morrow
of this story, we're going to talk about the numbers.
When we come back from the break but you know
there's if there is an opportunity to become a lender,
you just have to understand how. And when we come back,
I'll give you the names of the books. I've written
two books on this topic, and I think we're coming
up on a break, Andy, So this is two Sun

(12:27):
Home Solutions on K and ST.

Speaker 1 (12:30):
We'll be right back. Good morning, and welcome back to
the Home Solutions Show. I am joined again by Bob
zach Meyer and this is your host, Andy Keel with
Epic Realty. I can be reached at five two zero
five three nine nine five nine one and Bob, how

(12:50):
can you be reached sure?

Speaker 2 (12:52):
Five two zero three one four sold? And also I
wanted to share with people we talked about it last week.
We are taking this to a podcast. This show which
has been on Cannist since twenty twelve. We are slowing
things down a little bit but still active in the
industry and we've just decided that it's best served to

(13:15):
have a podcast. You go to your favorite place to
listen Spotify, Google Play, Apple and our podcast will be
available out there. If you want to access the podcast,
you can go to my coaching website which is note
Carrie dot com, www dot n ot E, Kerrie c

(13:37):
a r r y dot com. So with that going
forward after May again we've been this our thirteenth year
on the air, and we're still going to be sharing
real estate comments. And one of the things, you know,
adding Andy to the program, we had a lot of
people that could get alone from jerrys the best lender

(13:58):
in my mind in the city and always in the
top twenty or fifty in the nation, so very very reputable.
And you know, Jerry is an awesome guy. So, but
a lot of people don't fit in the box that
regular real estate sale happens. I mean, they don't have
a W two, they haven't been under their current job
for more than two years. They you know, we can't

(14:21):
lend money. It's against a lot of lend money to
someone that can't pay it back. But there's a lot
of people that fall through those cracks, and that's kind
of why we went into the private lending aspects. So
and then Andy does a lease option program that basically
enables people to buy a home and not close on
it for ten years, so they have an option to

(14:42):
buy it for ten years, and meanwhile that price is
locked in and then if they want to buy it
sooner than ten years, they can. But Andy can't sell
it to anybody else but that person. So it enables
people the time to get a down payment saved, It
enables them time for the home to appreciate, and you know,
it's just really a super program for a lot of

(15:03):
people that don't have the ability to put a fifteen
percent down payment and they can't get a loan at
a bank. Sony, any comments on that, Andy.

Speaker 1 (15:15):
Oh, I don't think I have much to add. You
pretty much nailed it.

Speaker 2 (15:19):
Okay, So let's talk about the real estate market. I mean,
one of the things a lot of people when they retire,
they have their money in the bank or in the
stock market, and some people and you know, have real
estate investments in their landlords. But a lot of people
in retirement want to travel. They want to be gone,
and it doesn't bode well to have rental properties. And

(15:41):
you don't want to be gone because it's Murphy's lie. Andy, Right,
the minute you plan a vacation, it's the same way
in real estate. Try to take a vacation, and that's
when your phone rings, and everybody wants to buy a
house the day you're leaving town.

Speaker 1 (15:52):
I can predict the next hailstorm and Tucson based on
when I schedule my next vacation, I can almost promise that.

Speaker 2 (15:59):
Yeah. So basically, the interest rates haven't really fallen that much.
The FED rate has fallen with the with the banks
charge and with the Federal Reserve charges to the banks,
that's fallen three times. But the raid on the street,
what did you pull up this morning?

Speaker 1 (16:16):
Andy? The ten year tea note was four point four
to four percent, So the quick and easy rule of
thumb is add a couple percent to that for okay
for a rough rate, so roughly about six and a
half would be a wish we had Jerry here today.
He's actually in account yeah this week, but he'll be
back next week for the finale.

Speaker 2 (16:37):
Yeah. Yeah. And Jerry Son again, he's your go to
guy if anybody is thinking about buying anything, get prequel
with Jerry. He's the most creative guy. And really, between
Andy and Jerry and I, I mean, there's not many
real estate issues that we can't solve between private lending,
between a traditional approach going through a bank and also

(16:57):
a buy now, pay later kind of a you know,
rent to own sort of a thing, a lease option,
so you lease the home with the option to buy it.
And you know, we are still in a very very
slow market. There are two point four million real estate
sales going to happen this year then happened back in

(17:18):
twenty twenty two. I mean, think about that. Two point
four million. That is two hundred thousand per month fewer
homes being sold across the United States. So the reason
for that it just became unaffordable. I mean, when COVID came,
the value of houses went through the ceiling, and it

(17:40):
just people can't afford to many people over half of
the United States couldn't. They wouldn't qualify to buy their
own home that they currently own right now. I mean
that just mind blowing to me. You've been in this
house for four or five years, and you can't buy
it back if you had to. So that's why we
all the value went up one hundred thousands you bought it,

(18:01):
and also the interest rate doubled since you bought it,
so twice as much interest and one hundred thousand more
to borrow is causing the unaffordability for people. So that
obviously during COVID was not sustainable those two years where
things went up one hundred thousand dollars, and what you're
seeing across the board is leveling on the market and

(18:22):
slight downturn. Like across the United States. This year, Zilo
predicts that the average home price will drop by one
point six percent. So it's not a free fall. It's
not two thousand and eight where we lost, you know,
fifty percent of of a homes value like here in Tucson.
This is a very very slow, but steady and it's
it's actually a very positive thing because as time March

(18:44):
is on, I mean we're three years past COVID now
as time March is on, people are earning more money
at their job, and that prices haven't been going up,
they've been kind of going sideways and slightly down. So
those two I think are going to converge probably next year,
right around election time. So I think the end of
twenty six is where the crazy COVID prices are going

(19:07):
to meet what people can actually afford, and hopefully by
then we'll have a lower interest rate and that should
kind of turn the real estate market around. But right
now it is a compared to what we've had, it's
a severe buyers market. Compared to the norm, which was
selling four houses or four months supply of houses twenty
five percent a month. We're still running a little higher

(19:29):
than that, so it's not necessarily a buyer's market. But
a lot of people still have COVID on their brain
and they think that they could just ask whatever they want.
There's going to be a bidding war on the first day, Andy,
do you have any recent examples of people with too
high of expectations.

Speaker 1 (19:47):
More than I can count, just especially when I tend
to with our business model, we often buy some things
that need to have a value add it's just it's
something's long and it won't go conventional financing because the
roof is bad, the interior is bad, and the last

(20:08):
especially three four months. You know, a lot of the
folks still have that ideal that they can just ask
anything for a property that needs work. And some of
the pie and the sky values that I'm looking at
are just are laughable. I mean, we're still buying, but
you know, I would say, you know, not that I

(20:28):
go look at a hundred houses, but I look at
one hundred emails that come through for viable options, and
I probably buy one out of one hundred, and that's
way way way down from say two years ago.

Speaker 2 (20:39):
Right, But people are you know, first of all, the
economy hit everybody except for people that don't rely on
their job to buy groceries and stuff. They have investments
that will buy them. So we're actually seeing a spike
in the number of expensive homes over one point two
million dollars being purchased, more than I've ever remembered I've
been in real estate age it in two so it's

(21:00):
two thousand. So, you know, the biggest thing is and
these numbers that were you know, from the MLS, it
it's sort of a misleading, not that they're trying to
mislead us, but the old MLS covered this little square
basically up to Marana and down to Green Valley, and
now we're going all the way up to Mammoth and

(21:21):
past Mammoth, all the way to Globe, all the way
south to New Gallus and Augua Pieta, way over to
Douglas and way out to Aho. So the size of
the data being reported in the MLS is actually twelve
times bigger than it was last year. So you know,
these new numbers that are coming out when you Oh,
that's about the same as last year. Yeah, but that's

(21:42):
twelve times more area. Now. Granted, a lot of that
space is is rural and there's just not a lot
of density and not a lot of sales out there,
So it might account for one hundred more sales all
that extra area because it's mostly vacant ranch land and
state owned land. So Andy, the number of sales in

(22:04):
January every year is usually the lowest month of the
year because everyone's getting their credit card bills from Christmas.
The shortest day of the year is actually December twenty first,
so it's dark when you get off work, not a
lot of showing activity on houses in January, it's cold outside.
I mean, there's all these reasons. But we turned around
and we actually had a pretty strong February and March,

(22:26):
but then April actually slowed down quite a bit, and
we were talking about that last week is sort of
going flat, and normally April, May Junior are the three
biggest months of the year for sales, and we're still
selling homes. As a matter of fact, I actually ran
comps on a property and it's right central Tucson, like

(22:47):
Elvernon and Speedway kind of area and that has over
fifty percent of all the houses under contract. Right now,
all the homes for sale are over fifty percent, So
it's a matter of supply and demand. And what you
see in the slowdown is the far out rural homes
are the first to fall, and it kind of works
its way in when there's a recession and people don't

(23:09):
have as much money to spend, and then when it
bounces back, the city center is where it starts and
it expands out, so the rural properties out like Sala
Rita and Red Rock and Ryan Airfield, I mean places
in the far out places like that are the first
to fall in the last to come back, where central

(23:30):
Tucson will be the last to fall in the first
to come back. So it's just something to understand about
the real estate market. And we're actually down to right
now to twenty sixteen. The homes on the market that
we have currently for sale haven't been this low and
haven't had this few of sales since twenty sixteen, so

(23:51):
almost ten years. It's pretty interesting and andy when we
actually were coming up on a break here shortly to
get too deep into my next analysis, but we are
about less than one hundred houses away from going over
five thousand homes on the MLS. And when you look
at when's the last time that happened, it was actually

(24:14):
right in early spring of twenty sixteen that we had
five thousand. We haven't had that many homes on our
MLS for almost ten years. So, you know, what do
they say? Supply and demand are the only two things
you need to know about anything like how many are
there and how many people want it? Well, we have
forty percent fewer buyers and five times more houses for

(24:36):
sale in Tucson than we had back in twenty twenty
two during COVID, So I think we're about ready for
our break, right, Andy.

Speaker 1 (24:44):
We are so with that. We are coming up on
a break. And this is Andy Keel with Epic Realty
and we will be right back. Good morning, Welcome back
to the Home Solutions Show. This is your host, Andy Keel,
and and I am joined again by Bob Zachmeyer. Jerry
Sunt is in a conference this week, so he is

(25:07):
out this week, but he will be joining us next week. Bob,
we were talking before the break about some market data,
so I'd like to just continue on that path.

Speaker 2 (25:15):
Sure, So every week I'm sorry. Every month, usually around
the twelfth of the month, the MLS releases the latest
statistics for the real estate market. And a lot of
these are just numbers on a sheet of paper. And
you know, I'm a visual person. I like to see
things in graphs, so I'll take that data and I
literally spend hours. And I've done this ever since I

(25:37):
became a real estate agent. I actually in the year
two thousand, when I got my license, I went back
in the MLS archives to see how far back I
could get data, all the way to nineteen eighty nine,
and then I've charted that data. They've since archived, but
you can't get I think two thousand and three is
the most recent data you can pull off the MLS. So,
I mean, it's sort of interesting. I have sixteen years

(25:58):
more data than most people. And why is that relevant?
I mean because you can look and see, like what
was happening during that time. There was a you know,
dot com bust in two thousand, when a lot of
people lost money in the stock market and it affected
real estate prices. And when the Great Recession obviously affected
real estate prices. First there was a shortage of homes

(26:19):
and then they basically got where there were so many
bank owned homes, most people couldn't afford to sell their properties,
and the only thing that was selling were bank owned homes. So,
for instance, in the month of May in nineteen eighty nine,
we sold five hundred and ninety eight houses, So let's
going to nineteen ninety nine eleven hundred and five, so
we almost twice as many houses. But then if you

(26:42):
go to two thousand and nine, we only sold nine
hundred and eighty seven houses that year, so you know,
it kind of took quite a big step backward. During
COVID and the month of May, we sold eighteen hundred
and eleven houses in Tucson in twenty twenty two, eighteen
hundred and eleven, so we just came off of our

(27:04):
most recent number. And actually April was twelve hundred and
fifty nine houses compared to sixteen oh six in April
of twenty twenty two, so you know, we're down quite
a few homes, about what three hundred and fifty houses, Yeah,
three hundred and fifty houses less how many days are
in a month, thirty one, so you know, basically ten

(27:26):
houses a day, fewer homes selling in Tucson than there
were back in twenty and twenty two. So when you
look at the median sale price, our median is kind
of interesting. We in January we're at three sixty five,
then we went to three seventy one, then we're back
at three sixty seven, and now this last month of
April we're at three hundred and sixty eight thousand. Well,

(27:49):
last year at this time we were at three hundred
and seventy four thousand. So what that tells you is
the middle price that people are paying for home is
dropped by six thousand dollars a year over year. That's
the first time all year that that the current number
has been lower than the previous number. Because in January,
when we had three hundred and sixty five thousand for
a median price, the year before was three hundred and

(28:11):
fifty four to nine, so ten thousand dollars less. February
three hundred and seventy one versus three sixty six last year,
so another five thousand dollars less. Then in March three
sixty seven versus three sixty three eight, so about two
thousand dollars less. And then here we are in April,
where the actual price last year was six thousand dollars

(28:34):
more than it is right now. So time will tell
just how that's varing with people. But you know, this
is where you would think that more recent comps are
a better indicator of the market, but nobody expected it
to go the other direction. Now, Andy, does that mean
that the value of your home fell six thousand dollars

(28:56):
if the median price from this year is less less
than last year.

Speaker 1 (29:01):
Yeah, no, it does not. It just means people are
tending to buy a little bit lower priced homes. It
doesn't mean that's not a good gauge on whether prices
are going up or down.

Speaker 2 (29:11):
Right, It's the middle range of what people are buying.
And so what that tells you is that affordability is
factoring into the equation. People are migrating to lower priced properties.
So if you're an investor, do you want to buy
an expensive home or do you want to buy a
lower priced home? And you know, I look at the
same way when I lend money to people, I like

(29:32):
to lend on low priced homes. And one of the
problems with Tucson is our median home price is over
four hundred thousand dollars. Are actually right now, we're at
three hundred and sixty eight thousand dollars, almost four hundred
and the I can go to Arkansas and find three
bedroom to bath houses for less than one hundred and
twenty thousand dollars that rent for way more money than

(29:55):
what we charge in a mortgage rate. So you know,
it's just you. You can play the market with the
internet and with I have friends all over the country.
I travel all over the place and speak at conferences,
and this is kind of how it enables my clients,
and a lot of my landlord clients that owned houses
for years and years, they I sat down with them

(30:18):
and said, what is your return on equity? I know
what you paid for the property, and I know how
much you're getting in rent right now. And you think
that's a great return based on what you paid for it,
But how much is that property worth? What is the
value of that asset? And how much are you netting
after you pay your property manager? And if you don't
have a property manager, you have a job, right, how

(30:39):
much do you get after you factor out five percent
in vacancy? How much do you get when you factor
out at least one hundred dollars a door for repairs
every month. And that when I say a door entry door,
not every door in the house. But you know, so
you you look at oh look I have this rented
for fifteen hundred. Well, yeah, you got to pay taxes,
you got to pay insurance, you got to pay repairs,

(31:00):
you got to have vacancy. And then what are you
netting on the value of that property? What if you
just sold that property? How much would you in cash
would you have in your pocket? Now, take the net
that you're earning each month, multiply it by twelve, and
that tells you the rate of return that you're earning
on your property. And I can't tell you the number
of times, Andy that people come in and with this

(31:21):
great portfolio of rental properties and when we run on
the numbers, they're actually lower than a four percent rate
of return on their equity that they have in those properties.

Speaker 1 (31:30):
Yeah, I agree. I see that all the time. And
actually I want to expand on that a little bit
because I think it's such an excellent point. We're so
attuned to when we're buying a property to look at
the return on investment number, but then we tend to Okay,
it's in portfolio, it's performing, and we forget about it.

(31:51):
But then fast forward, at least in our case, when
we take a property back, we will we'll take a
look at it and instead of looking at return on
investment numbers to your point, now, we're looking at return
on equity because it is a very different result, and
that's what you should be looking at in your portfolio

(32:12):
with the seasoned properties, because in return on equity isn't
the be all end all. Like for example, we like
to have a portion of our portfolio that we're working
on getting it free and clear. We know full well
the return on equity isn't going to be the best,
but that's okay because having a free and clear property

(32:33):
is like sleep at night type of thing. But for
another portion of our portfolio, we want to maximize the
return on equity. So we had one very recently where
we had to make a decision and it was a
pretty quick decision because our return on equity was very
much like you said, I think it was about four percent,

(32:55):
and if we sold the property and took the rough
one hundred and fifty one hundred and sixty thousand equity
that we had, we could turn it over and do
two more houses with it, which was a far better
return more work, And I would for the audience out there,
especially with the real estate portfolio, I would challenge you

(33:15):
all to look at your return on equity numbers for
anything seasoned in your portfolio and then maybe take a
second thought on would the money be better somewhere else?

Speaker 2 (33:27):
And really that's where you're always looking as an investor.
Where can I put my money? I mean, if you
had an intersection and there were banks on either side
of the intersection, which one are you going to put
your money? And you're going to go into the bank
and ask them how much they're paying, And go across
the street and into that bank and ask how much
they're paying. You're probably going to choose the one that
pays you the most. I mean, that's human nature is

(33:48):
to do what's best for you. So I mean you
got to do the same thing. And we're all creatures
a habit we just sort of get used to. I like,
these are my properties, these are my children, right. I
bought them, I fixed them up. I laid all that
tile in that house myself. I mean I did that
for years, and I really didn't want to let go
of my properties, and I looked at what I was
earning and actually what I'm earning now. So from the

(34:11):
year twenty twenty andy, I actually had time during COVID.
I sat down and I analyzed everything that I had,
and I was looking at, you know, slowing things down
and looking at retirement. How much of my money is
earning money every month. So for most people, their home
represents nearly two thirds of their net worth. When I
ask people how much does your house make every month,

(34:32):
they look at me like, I'm from Mars, Well, your
house doesn't make any money. So this is why we
had Tina Steel on the program so many times, I
mean dozens of times over the years to tell people
about reverse mortgages. You could actually take a loan out
against your house. You don't have a house payment, but
every month the loan is going a little bit higher.

(34:52):
But if you invested that money and earn the interest
on it, ate the interest, not the equity of the home,
the you'll never catch it. I mean basically, if you're
only taking out a loan against half the house and
you're earning appreciation on all of the house. I mean,
we have averaged since two thousand and five and Tucson
three point five percent appreciation. So if the whole house,

(35:15):
let's say you have a two hundred thousand dollars home,
if it makes three point five percent, that means next
year it's worth two oh seven and the year after
that it's you know, seven or three point five percent
times another two hundred thousand or two hundred and seven thousand,
so it keeps growing. Well, if you had a loan
and that loan was at seven percent and you're only

(35:38):
borrowing the money on you're actually getting the loan from
the bank at seven but it's only on half the property.
So now seven percent of one hundred thousand that you
borrowed is seven thousand dollars a year. Three and a
half percent of the two hundred thousand that the house
is worth is seven thousand dollars a year. So it's
a wash. I mean you basically, we had this extra

(36:00):
living money every month, which is one hundred thousand dollars
would pay six hundred and sixty five dollars a month,
and you have the six sixty five every month, and
your home equity is still the same. So it's really
an interesting, interesting concept and any thoughts on that.

Speaker 1 (36:16):
Andy I think i'd actually like to expand on that
a little bit after the break. We are coming up
on a break here shortly. But I've seen personally, and
I'm sure you've seen even more than I have over
the years, how many folks that have, when used properly,
turned a reverse mortgage into something that is truly life

(36:38):
changing for them because they can do the reverse mortgage,
never have to pay the money back and get a
completely new income stream that allows them to get gas
in the car to go visit their kids or what
have you. I mean, it's truly amazing. So we'll talk
about that a little bit more after the break, which
we are coming up on here now, so we will

(36:59):
be right back in just a moment. This is the
Home Solutions Show. Hi, and welcome back to the Home
Solutions Show. This is your host Andy Keel and I
am joined again by Bob Zachmeyer. Before the break, we
were talking a little bit about reverse mortgages and I
really wanted to expand on that.

Speaker 2 (37:18):
Sure, and you know, depending upon your age, you can
get a reverse mortgage when you're sixty two years old.
And Tina Steel by far as the where I learned
everything I know about reverse mortgages, and she is at
Penny Lane and reverse mortgage company. That's all she does.
And she's been on the program many many times. You know,

(37:38):
I was looking like, what if you are looking at
retiring and you wanted to buy a second home. So
now let's just say that you have investments that are
earning in your stock account or whatever you're invested in,
earning seven percent return. Well, to go buy that home,
you would have to get a reverse or without reverse

(38:00):
mortgage if you're going to pay cash, and most people
from what they learned from their parents, oh you should
pay cash, never owe money on a house. Well, now
you've taken something that let's just say that you're going
to get out two hundred thousand dollars to buy a
second home. And there's a lot of very inexpensive places
where you could do that. So now, if you were

(38:22):
earning seven percent on your two hundred thousand, you just
basically took that money out. You lost fourteen thousand dollars
on your investment so that you could put it into
a home. And Andy, how much money does a house
make every month?

Speaker 1 (38:36):
Well, if you're living in it, it would be as
you would say, negative zero negative.

Speaker 2 (38:40):
Yeah, negative, Because you have property tax, you have insurance,
you have upkeep repairs. So it makes no sense to
take a producing asset and turn it into a non
producing asset. In real estate, for most people represents almost
two thirds sixty two percent of their net worth at
retirement because they lived there their entire life, and they

(39:02):
bought it low. They rode the appreciation, and every month
they paid down a little more toward principle, and they
end up owning the house free and clear. But I'd
run into this all the time, where the money in
the house is two thirds of what they have total
in life, and that two thirds not only isn't producing income,
it's actually costing them money in all the overhead. So

(39:25):
it'd be much better off too. And for easy math,
we're going to say that you could go in and
get a fifty percent loan if you're just sixty two.
That's the earliest you can get a reverse mortgage. It's
closer to thirty or thirty five percent. I forget the
exact number, but if you get into your seventies, you
could borrow say fifty percent of the homes value. So

(39:47):
now you go buy the two hundred thousand dollars home.
You have to have fifty percent equity. You can borrow
fifty percent, So you would put down one hundred thousand
and have a reverse mortgage for the other one hundred thousand,
no pay. But now you left one hundred thousand dollars
in your asset still producing six hundred and sixty five
dollars a month of income at seven percent interest, instead

(40:09):
of taking all the money out producing no income. And
now how are you going to pay your property tax?
So if you basically had six hundred and sixty five
dollars a month coming in on half the money, it
would be enough to pay the property tax insurance. And
it just enables a lot of people, whether it's one
house or two houses, whatever you have, just money always

(40:30):
goes where it's treated the best, and that's you know
where you want to have it in something that is
producing income. That is the biggest thing that changes when
people retire is a lot of people think, well, I
won't be working anymore and I won't need to drive
to work, I won't need to buy more work clothes,
I'll save money. That's not true at all, because you

(40:52):
are going to have way more time on your hands
and there's way more opportunity to go golfing with somebody
or to go to breakfast with somebody, and you're going
to need more money in retirement, not less. So it's
just really really important to have all of your assets working.
And if you don't mind, Andy, I'll plug a couple
of my books that I wrote about please do, Bob.

(41:12):
You can go to Amazon. The first book I wrote
in this topic was back in twenty eighteen, Who Needs
the Bank, and it just basically educates you how you
can become a mortgage lender. And then the one I
just published less than a year ago April fifteenth of
last year, actually just over a year April fifteenth of

(41:33):
last year on tax Day, appropriately Retirement Hacking is the
name of the book, Retirement Hacking, and it's just, you know,
goes into all of these strategies. And we actually focused
effort from the year twenty twenty to the end of
twenty twenty four. We went from having thirty five percent

(41:55):
of our all of our assets working producing money, thirty
five percent was producing, sixty five percent was non producing.
By just restructuring a few things, we actually are now
over seventy percent of our net worth that's actually producing
income every month and easily paying for the expenses that

(42:15):
we have in everyday life. And you can have all
the price increases that you want because we're not spending
anywhere close to what the money is earning. But it's
just a much wiser way to distribute your wealth.

Speaker 1 (42:29):
Yeah, And I just want to add to that that
anyone that's ever thought about doing owner financing, we actually
have a stockpile of your book Who Needs the Bank Book,
and anybody that's ever thinking about that, they just get
a copy of that naturally, because you do such a
wonderful job. I've always said Bob has an incredible ability

(42:49):
to take very complicated pieces of information and make it
so simple that anyone can understand it. So I just
love how a lot of the concepts in the book
about owner financing, you just you make it so simple
and easy to understand. It's a real quick read. So
I couldn't recommend that book more so anybody out there

(43:11):
listed please, that's a great, great book if you've ever
considered doing receiving or giving owner financing out of property.

Speaker 2 (43:18):
And I got to say Andy that Who Needs the
Bank Book published in twenty eighteen, that book has sold
over eleven thousand copies and it's sold more than all
my other six books put together. So it's just really
a down to earth. This is you know how to
take something that you have and turn it into something
much greater and still have the asset that you have.

(43:39):
So like using a reverse mortgage, I mean, if you
get a loan against your house, who owns the house? Well,
a lot of people think that bank's going to own
the house. No, you own the house. You have a
loan on it. So when you pass away, your heirs
will get the house with the loan, and then they
have to pay the loan off if they want to
keep the home, or they sell the home, and the
equity in it is theirs. So but who gets all

(44:02):
the appreciation? You do? And most people when they first
start out in life, they get a very low down
payment loan, like an FHA loan at three and a
half percent down so or a VA loan. The best
loan if you're eligible, is to put zero percent down. Now,
when that house increases in value over time, all of
the appreciation came to you. You had zero dollars invested

(44:23):
in it. So that's an infinite return on investment. And
even if if you put ten percent down on a
home and it went up ten percent over over a
few years time, then basically you made one hundred percent
return on your money over that period of time. If
it was two years, then you made fifty percent each
year return on investment. So where do you find investments

(44:45):
like that that you know your house goes up in
value and you get all the money even though you
only had a fraction of the money invested. That is
the magic of a reverse mortgage.

Speaker 1 (44:55):
Yeah, no doubt, it's an incredibly powerful tool. And to
bring up one more story that I just talking about
owner financing and the usefulness and the need for it
with a certain subset of folks out there, especially like
as you say, Bob, the hardest working people out there,
the self employed, the business owners, and so many times

(45:18):
the lenders just don't want to give them a loan
because they don't have their income is sporadic or things
like that. But talk about the dentist. That was such
a great story. If you'd share that one again, I
think you know what I'm referring to.

Speaker 2 (45:34):
Yep, you know, we run into this all the time
that people making a tremendous amount of money can't get
a bank loan it. And medical professionals and whether you
haven't been out there earning this long or you know,
you know, just all of the reasons that banks give.
And the bottom line is it's against the law to
lend money to somebody that can't repay it. So if

(45:54):
it's their home that they're going to live, and they
have to be qualified by a licensed loanerenator, and that's
an awesome law. So we encourage people go, you know,
go let's get this lender report. We actually have a
company that does that for about seven hundred dollars and
then they say, yes, this person has enough assets and

(46:15):
income to qualify for the loan. And you know, we
don't care about the rules because these lenders are selling
their loans to other people. I don't want to sell
my loans. I like to keep them. So basically, the
reason that the bank has all these overlays is because
they're planning to sell that note on that property and
they need to have Fanny or Freddy buy it, and

(46:37):
they can't. It has to have all these you know
how many years on the job and all these these
extra boxes checked where we don't really care because we
have no intention of selling a loan and we're not
worried about other people's criteria. And Andy, I just wanted
to share. I was doing some analysis for the stock market,
and I went all the way back to the s
and P five hundred, which started in eighteen seventy one.

(47:01):
And what's really interesting is all until nineteen seventy one,
it's noise level. I mean, in nineteen twenty nine the
SMP five hundred was worth twenty five dollars. I mean
the total was twenty five and so now the SMP
five hundred, and it's not dollars, that's just the value
of the stock, the conglomeration of stocks. But as of

(47:25):
this week it's at five eight hundred and ninety two.
But how long has that been at that rate? Do
you know what it was fifteen years ago? It went
up six hundred and fifty five percent in fifteen years.
And during COVID, the SMP five hundred from twenty nineteen
to twenty twenty two went up seventy five percent in

(47:46):
three years. So if you see this chart all the
way back into the eighteen hundreds, I mean three quarters
of the way across the page. You can't even see
the number. It's so small, and now we're almost to
six thousand, and I just I don't see it. I mean,
the companies didn't make far more money. I mean, it's
just more and more leverage. And call the stock market

(48:08):
what it is. It is a casino. And yes you
can make money depending upon the day you buy in,
but it is a casino. So we're going to talk
more about that on future episodes of our podcast, and
we're coming up on the end of this show and
we have one more i believe for this month, and
then we will be off the air after thirteen years.
So if you want to catch our podcast, please write

(48:29):
this down www dot Notecarrie dot com and there's a
big banner on that website that's my coaching website that says,
you know, a home solution show and you can listen
for free and there will be other free tools out
there as well.

Speaker 1 (48:44):
And with that, we are coming up on the end
of the show. Thank you everyone for joining us on
this Sunday morning, and we will talk to you next
week for our finale episode. Thanks again.

Speaker 2 (48:55):
Thanks Andy,