Show notes
In this podcast episode, Keith Weinhold discusses the benefits of investing in stable property markets, the risks and benefits of taking out a second mortgage on a property, and the potential impact of remote work on the real estate market. Weinhold also touches on the performance of stocks and other asset classes in the first quarter of the year, highlighting the drawbacks of savings accounts, CDs, and money market funds, and suggesting that investing in real estate can be a better option. Overall, Weinhold emphasizes the importance of investing in stable markets with high rent ratios and strong landlord tenant laws. **Real Estate Prices [00:03:39]** Discussion of the current and future direction of real estate prices, with a recap of the benefits of investing in real estate. **Tapping Equity [00:04:50]** Explanation of the problem with tapping equity and the risks of taking out a second mortgage on a property. **Second Mortgage [00:05:43]** Explanation of how to add a second mortgage onto a property and access cash without refinancing the entire loan, with details on the 80% combined loan value ratio. **Risks of Second Mortgage [00:07:49]** Discussion of the risks of taking out a second mortgage, including interest rate fluctuations and the potential pitfall of borrowing short to go long. **Second Mortgage Benefits and Risks [00:09:51]** Discussion of the benefits and risks of taking out a second mortgage on a property for investment purposes. **Current Direction of Home Prices [00:12:09]** Analysis of the current direction of home prices in the resale market, including a survey of resale agents and national existing home prices. **Regional Real Estate Market Performance [00:18:00]** Discussion of the stability of regional real estate markets, with a focus on the southeast and midwest, and the importance of stable prices, high rent ratios, and strong landlord tenant laws. **WFH Trends and Regional Real Estate Markets [00:20:24]** Analysis of the potential impact of work from home trends on regional real estate markets, including an increase in flexible job postings in major cities. **Virtual Real Estate Investing [00:25:02]** Discussion of the recent failures of metaverse projects and the risks of virtual real estate investing. **Factors Affecting National Home Prices [00:26:15]** Explanation of the headwinds and tailwinds affecting national home prices in 2021, including bank failures, job loss recession, labor and supply inflation, spring home buyer demand, and the supply crash. **Mortgage Rates [00:30:20]** Explanation of the difficulty in predicting mortgage rates and the lack of forecast for their direction. **Various Asset Classes Performance [00:32:17]** Discussion of the performance of different asset classes in Q1 of the year, including precious metals, savings accounts, and real estate. **Benefits of Investing in Real Estate [00:35:14]** Real estate investing as a way to beat inflation and transfer prosperity from dollars to property, with the added benefit of control and potential for five ways of profit. **Reasons to Invest in Residential Real Estate [00:36:27]** Advantages of investing in new or renovated residential real estate, including low maintenance expenses and potential for no capex expenses during ownership. **Expectations for Real Estate Market [00:37:33]** Expectations for the real estate market in the next five years, with a caution that the historically high price run-up may not be repeated. Resources mentioned: Show Notes: www.GetRichEducation.com/444 National existing median home price: https://fred.stlouisfed.org/series/HOSMEDUSM052N National median home price (existing & new): https://fred.stlouisfed.org/series/MSPUS Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: info@RidgeLendingGroup.com Memphis & Little Rock property that cash flows from Day One: www.MidSouthHomeBuyers.com Find cash-flowing Jacksonville property at: www.JWBrealestate.com/GRE Will you please leave a review for the show? I'd be grateful. Search "how to leave an Apple Podcasts review" Top Properties & Providers: GREmarketplace.com Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free—text 'GRE' to 66866 Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Keith's personal Instagram: @keithweinhold Welcome to GRE! I'm your host, Keith Weinhold. Would you rather be age 18 and poor or 80 and wealthy? Learn about how a second mortgage could benefit you. Historically, what REGIONS of the nation have the most stable and volatile real estate prices? Then, there are two ominous threats to FUTURE property prices. All that and more, today, on Episode 444 of Get Rich Education. Welcome to GRE! From Orange County, Florida to Orange County, CA and across 188 nations worldwide, I'm Keith Weinhold, this is Get Rich Education. Last week marked 50 years since the first-ever cellphone call was placed. The call from the 2.5-pound brick-sized cellphone was placed in NYC - Manhattan. That phone could NOT fit inside a standard pocket. Sheesh! Look, I won't even use a case on my iPhone today because I'm concerned about the weight and friction and it would add! I want it light and I want to be able to quickly slide it in & out of my pocket. Ha! Well, I've got a more significant trade-off for you to consider. Would you rather be age 18 and poor or age 80 and wealthy? I think you and most everyone would rather be 18 years old and poor rather than 80 years old and wealthy. I am pretty confident that you & I agree on that. Well, if you'd rather be 18 and poor, then why would you go to a job to trade your time for dollars? Because that's exactly how you move away from 18 and poor straight toward 80 & wealthier but probably 80 & still less than wealthy. Why would you make that trade? Even if you love your job - if it's not the activity you'd MOST want to be doing out of anything else in the wide spectrum of life, move away from 18 & poor? Well, time is going to pass one way or the other, but you can win back your time & end up wealthy rather than "somewhat less than wealthy"... …when you provide value for society by giving them housing, getting paid 5 ways at the same time, one of which includes a MOSTLY passive income stream, trading relatively little of your life time all the while. That's why we do here. That way, you're not quite going to be 18 & wealthy, but wealthy when you're young enough to enjoy it. Over the last three years, property prices are up 30 to 40% in a lot of markets. We're going to look at the current & future direction of real estate prices in a moment. But let's talk about what you can do with this… what you can do with that dead equity in your properties. America has near record-high equity levels right now so this is really timely here. But there's a bit of a problem with tapping your equity today. Before I get into that, just a recap minute here… Of course, as any longtime listener knows, since the rate of return from home equity is always zero, you have a chance to harvest your equity. Having, even an extra $1,000 of equity in any property, including your own home, is like making an extra principal payment of $1,000. Doing that is like you saying, "Hey, Mr. Banker. Here's an extra $1,000 principal payment. Don't pay me any interest on it. If I need it back, I'll pay you fees, and I'll try to prove to you that I qualify again." That's the short story on why home equity is unsafe, Illiquid, and its ROI is Zero. OK, but if you have a mortgage loan that's set at just 3 or 4% interest, are you really going to refinance that whole loan just to pull some money out - just to convert some equity to cash? Because if you did, your mortgage rate could go up to 6 or 7%. So accessing equity isn't as great as it used to be. Ah, but there's a way around this. One your, say, property at, say, Huckleberry Lane, you could keep your existing mortgage in-place at that low 3% or 4% rate, and potentially add a second mortgage onto Huckleberry Lane - and only that second mortgage is at the higher rate. The first loan stays in place and so does its amortization schedule. Now, if your Huckleberry Lane property is worth $500K, you can often have 80% of that, or $400K borrowed, that's that 80% combined-loan-to-value ratio. That means that the amount of cash that you can get your hands on is $400K minus your mortgage balance. That's why a lot of property owners are able to access, often, $100K or more cash, without touching their low first mortgage at all. Get $100K cash out - or whatever you have access to - it's not providing you with any rate of return anyway. Though you can often borrow out up to 80% of your primary residence's property value, the deal isn't as good as far as getting second mortgages on your rental property. Second mortgages on a rental are, sometimes available, sometimes not. When they are, it's recently been just up to 70% that you can borrow out. Now, as good as this might sound, it doesn't mean that you SHOULD do it. What are the risks with taking a second mortgage on your home or rental properties? Well, some second mortgages take the form of a Home Equity Line of Credit - or HELOC. The interest rate on your HELOC can fluctuate, so there's interest rate risk. Most HELOCs have a fixed rate period for the first 5 or more years though. Before I talk more about the risk of a second mortgage, it's just amazing - the number of people that I run into out there - most of them aren't REIs - but homeowners that are elated that they got a low mortgage rate 2, 3 years ago (and they should be - congratulations)... but they want to tap their bloated home equity and don't know about adding a second mortgage. Now, a risk with a second mortgage is the potential pitfall of borrowing short to go long, meaning your HELOC rate resets in a little as five years - it could go down when it resets and it goes up, and at that time, you're not liquid enough to deal with the second mortgages higher payments. Now, I know, it's exciting about getting into more income property, using dead equity from your own home or your own rentals - because it's "Real Estate Pays 5 Ways" stuff. You might tell yourself, that when you add up a 5 rates of return from investment property - appreciation, cash flow, amortization, tax benefits and inflation-profiting, that you can surely see a total rate of return on your new rentals of 20% or 30% or more. So if your second mortgage has an interest rate of 7 or 8%, you'd do that deal and pocket the spread. Yes, it sure might work out that way, in fact, there's even a probability that it could work out that way. But the risk is that you've got to stay liquid enough to service the debt if your second mortgage rate rises or any other reason. And you might be just fine. You might have enough cash flow or cash stored that you're padded, you're fine… and your underwriter might help you look at that during your second mortgage qualification. You might ask Ridge Lending Group or your favorite lender about second mortgage options. So, now you know. A second mortgage can keep up your velocity of money. There are benefits and there are risks. Utilizing it successfully looks something like this. You start off with 50% equity in one property, which is 2:1 leverage, you move some of that into a second property. Now you've got 25% equity in both. You've done MORE than double your wealth-amplifying ability here. You've virtually 4Xed. Because rather than having 2:1 leverage in one property, you've got 4:1 leverage in two properties. That's how wealth is BUILT. Let's talk about those ERSTWHILE home prices. There are at least two ominous threats to future home prices. And now that it's Spring and market activity picks up, what's the CURRENT direction of home prices? Real estate can move slower than glaciers, so March numbers are still scarce. Home prices in the resale market - alright, that means existing homes, not new-build - those resale prices have stayed remarkably resilient, even when mortgage rates jumped up back in February. John Burns REC compiles a chart for the latest survey of resale agents. The question that was asked is: "What direction have resale home prices moved in the last month?" The national survey respondents can pick that prices are either MOST INCREASING, MOSTLY DECREASING, or MOSTLY FLAT. This February, for the first time since May of 2022, more said that home prices are "mostly increasing" rather than "mostly decreasing": Note though, that most of the agents in the latest survey show that prices are merely steady at 51%. 26% said "increasing" and 23% decreasing. Credit to JBREC. This is a national survey of ~2,600 resale agents. Now just from this chart and THESE stats, note something interesting. October 2022—appears to be housing's low point. That was then, six months ago—marking housing's recent low point. So, that's a different angle on looking at home prices than usual - asking agents what they're seeing. National existing home prices, per the FRED stats, month-over-month are up just a little, from about $361K to $363K. Again, that's through February. Seasonally, that could go up more. That typically happens each year when spring transitions to summer. There's a good chance that national homes prices will be rising these next few months. If you think that those prices sound a little low, be mindful, this entire discussion, so far, is about EXISTING homes aka resale homes, which tend to be priced lower than new construction homes. If you combine both existing & new, same source, $468,000 is the national median home price. That was the same quarter-over-quarter. Same source too. It's always important to cite the source when it comes to statistics. You know, some say the 1990s are when America moved into the Information Age. But, at some point, in the 2010s, did we move into the DisInformation Age? I don't know. There's a lot of both out there - a plethora, a profusion of both information and disinformation. Some of these niche finance social media pages don't cite their sources, and more often than not, I don't follow them or I unfollow them if I find that they regularly don't cite source. The other type of story that I unfollow or just stay away from, are article headlines or images with the word "Rumor" in it. I don't want to follow Rumors. Now, I guess, in the best case, a rumor could turn out to be true and maybe could give you a heads up on something that actually turns out to come true later. But, the world is full of real information. I don't want to spend this one finite life I have on earth catching up on rumors. It's more sports sites that use that word rather than finance sites. Rumor is just an annoying word, I guess. It's a synonym for "gossip". Hey, the real estate investing and personal finance world has its own quirks and odd spins on words. One thing I haven't been able to figure out is how a guru is bad and an obsession is good. Some people disparage thought leaders and influencers as gurus. Guru means an influential teacher or an expert. That sounds like someone worth listening to to me. How are obsessions good. Some say, to succeed, you've go to be obsessed. No, you don't. That sounds unhealthy. The definition of obsess is to preoccupy or fill the mind of someone continually, intrusively, and to a troubling extent. Don't fall into the t…
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