PODCAST EDUCATION

Real Estate Investing with Keith Weinhold

Episode 009

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys invited Keith Weinhold from Get Rich Education on the show for an all-inclusive passive income discussion about real estate. Listen and subscribe to Keith’s podcast at https://www.getricheducation.com/podcast/

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red-hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.  

John Larson: Hello my Real Estate Cowboys. John Larson, your host. Today I’m really excited about this episode. I have my good friend and host of another great, great real estate investment podcast, Mr. Keith Weinhold. Keith and I have spent a lot of time together in a lot of different markets that I personally invest in Dallas, Texas, in St Louis, Missouri, and also in Placencia, Belize. And so Keith comes with a wealth of knowledge just like me, real estate investor, really believes in generating passive income through real estate investments. So in this upcoming interview, there’s a ton of great information. We actually ran over on the interview. Uh, we got about 45 minutes, a great content that I’m super excited to share with the Real Estate Cowboys community. And so Keith Weinhold has almost two decades of experience in active income property investing. He owns apartments in his home state of Alaska, single-family homes here in Texas, and a coffee farm in Panama. Keith is an international bestselling author, a writer for Forbes and the Rich Dad Advisors. He is also a member of the Forbes Real Estate Council. Keith is most known for his popular real estate investing podcast, Get Rich Education. Real Estate Cowboys community, welcome to the show, my good friend, Mr. Keith Weinhold. 

Keith Weinhold: John! Thanks so much for having me here.  

John Larson: So I’ve been on your show a few different times. Um, thank you for joining me on the Real Estate Cowboys Show. I think we’re going to get some good content going here.  

Keith Weinhold: It’s great to be a cowboy for an hour or so anyway.  

John Larson: So Keith, let’s get right into it. Um, how did you get started in real estate investing and what drew you to it?  

Keith Weinhold: Well, I started by making the first home of any kind I ever owned a fourplex building where I lived in one unit and rented out the other three. And I just did that with an FHA loan and you can get that with just a three and a half percent down payment and a low credit score. It’s a very actionable way for your audience to get started with a bang today. But backing up a little bit from that, I grew up in upstate Pennsylvania, Appalachia, to two great loving parents, but we just happened to be lower middle class. I mean my mom was clipping ten cent Cheerios coupons out. But you know, one thing that we did do, is we traveled well and you know, my dad instilled in me, you know, you got to figure out what kind of life you want to design for yourself. If you’re not passionate about your day job, don’t let that define you. Don’t live to get paid. Find a way to get paid to live. So growing up in Pennsylvania, John, one place in that I vacationed to, it was a place that I ended up dreaming about living in, that was Anchorage, Alaska. So after vacationing there a few times, it really fit my interests for skiing and mountaineering. So I moved to Anchorage, Alaska, which is where I still live, and John, I think I spent about three percent of my adult life explaining to people why I choose to live in Anchorage Alaska. But it really fits my interests. And, and you know, John, shortly after moving to Anchorage, I fell in with what I would call an aspirational crowd, an aspirational group of friends. So you know, if you want to change yourself, the fastest way to change yourself is change your group, change your peers, change the people that you’re around. I knew that they had each bought fourplex buildings this way with very little down, and see that’s what gave it a familiar frame of reference for me so that it was not so scary in buying that first fourplex.  

John Larson: Yeah, that makes sense. Um, okay. What would you say, why, why is today a great time to be a real estate investor?  

Keith Weinhold: Yeah. Well that’s really interesting because people have seen that real estate prices have run up for a number of years here. They’ve also seen interest rates have gone up. Well, today’s a great time to be a real estate investor because look, historically, mortgage interest rates are still near historic lows. They were 18 percent in the early eighties. They hung around 12 percent, 10 percent, 8 percent for years after that, and interest rates are still historically low. You can tie up this long term fixed interest rate debt for 30 years.  You cannot even do that in most countries in the world, so you know if you think that interest rates are going to continue to rise and I believe that they are, well, if you think interest rates are going to be, say seven percent in four years, you’re going to look back on today as a great opportunity to get in. Another reason is more millennials are entering prime renter age right now, and millennials are the largest generation. They’re even larger than the baby boomers. And you know another dynamic out there, John, is that college costs continue to rise even faster than inflation. Well, what the heck does that have to do with real estate? Well actually alot,  because we want to rent a place to a tenant, and high college costs, that means that more millennials than ever are saddled with student loan debt, so they have a hard time coming up with a housing down payment, therefore a greater proportion must rent and that’s really good for people like you and I that need renters. And you know, that’s sort of a demographic component, John, but there’s also what I would call a psychographic component and look, years ago, millennials saw their parents lose their home and the mortgage meltdown of 2009 and that happened in that person’s formative years.  So some millennials just have a negative association with home ownership. I think many want to own, but you have fewer people that want to own than did in the past and that helps drive rental demand. Another good reason it’s a good time to be a real estate investor, and so many people overlook this, is just that the population overall of the United States continues to increase, and that just drives the Economics 101, of supply versus demand. And that’s very easy to take for granted if you were born and raised in the United States. But population losses in places like Japan, and Greece and Spain, that creates excess housing capacity there. That doesn’t happen here. It gets absorbed as long as you buy in a relatively vibrant economy.  

John Larson: Yeah. That makes absolute sense. And so what would you say to maybe some people listening to this podcast, you mentioned the rise in interest rates. What would you say to some of the people listening to this podcast that are sitting on the sidelines because they see the rates increasing? Now to you and I, we don’t really look at the rates as being high, right? Anything below seven is still a very, very solid rate. But I see some investors who are maybe getting a little scared and sitting on the sidelines and saying, oh, well, interest rates are creeping up now. I can’t get the money for as cheap as I could have two years ago. I think maybe I’m just going to sit this one out and wait for the rates to drop. What would you say to somebody that’s got that type of mentality? 

Keith Weinhold: Historically, when rates rise and people think they’re going to continue to rise, people have a sense of urgency to buy. It’s actually when interest rates fall, that’s when savvy investors tend to postpone purchases, so you really only postpone purchases when you see that interest rates are going to fall because you have the belief that they’re going to fall lower. So I do think we’re going to continue to be in an increasing rate environment, but these are the reasons why we’re still historically low and no one really expects them. No one truly knows, but no one really expects them to get any lower in the next year or two, and we don’t expect real estate prices to be much lower either. Just again, back to the old Economics 101, of supply versus demand. We are undersupplied for many product types in a lot of markets.  

John Larson: Absolutely. And so being the Real Estate Cowboys, we talk a lot about passive income real estate investment options, and we primarily focus on single-family properties. And you mentioned that you started off with a fourplex. Those are great. Cashflow generators absolutely. Um, I’m a big fan of, of four unit buildings as well. Um, but specifically what we’d like to talk about with the Real Estate Cowboys is buying one single family home. Tell me, what do you like about single-family homes specifically?  

Keith Weinhold: John, I am so glad that you asked exactly that because most people just assume that apartments are always going to be better than single-family homes because you think about the economies of scale that you have there all in one building. I’ve been investing directly in real estate for 16 years. Ever since I bought that first fourplex building. And you know what John, most investors, they don’t do any backward-looking analysis. What I call forensics on what actually happened. Where did your returns come from, from single families, and where did your apartment returns come from and what outperformed what? My family income properties have often performed my apartment buildings at a better rate. And you know, there are a number of reasons why. You get a better tenant quality in single-family residences. Single families tend to appreciate better over time than apartment buildings do.  Your neighborhood tends to be better with a single-family home than an apartment building and of course a lot of these are exceptions. I’m talking about generalities, general trends. You’re more likely to own a place in a better neighborhood in that they’re going to have a better school district. Therefore you can retain the tenant in that property longer when it’s a single family home versus an apartment. And apartments tend again, just generally, to be in inferior school districts. And you know one thing about a single family home that really helps investors. You as an investor, I want you to think about how the tenant thinks. Tenants tend to stay in single-family residences longer because it feels like their own. A communal apartment building where you might be sharing a washing machine with a stranger, now that’s just something that, as soon as you’re more upwardly mobile, you’re not going to continue to live there.  And as we know, vacancy and turnover costs are huge in real estate investing. So that ability to retain tenants longer in single family homes is important. And you know, one thing that apartment building investors often overlook in their profit and loss statements when they think about purchasing an apartment building, and, gosh John, I made this mistake myself before I bought my first apartment building. Apartments have hallways and stairs and laundry rooms and other areas that a custodian needs to service. That’s a drag on your profit and loss that a lot of people don’t look at.  What about utility payments? In single-family residences, tenants often pay for all of your utilities and they even care for the lawn, and the larger an apartment building is, the more likely that you, the investor, are going to be the one stuck with utility costs. And John,  another thing I talk about sometimes it’s just something people never talk about, is what I call divisibility.  

Keith Weinhold: Okay. What if you as an investor have a property that’s underperforming? Well, if you have 10 single family residences, then you can just sell the one or two homes that are underperforming. But with a 10 unit apartment building, you’ve either got to keep the whole thing or sell all 10 units. It’s not divisible. John. There’s one other thing that a lot of people don’t like to talk about. A lot of real estate investing promoters don’t like to talk about, but you know, we’ve got to bring it up. What about something kind of ugly like pestilence? If one tenant attracts a cockroach or a bed bug infestation, the latter of which is becoming more prevalent, that can quickly become a diffuse condition across the entire building that will spread into other units. I’ve had a tenant be responsible for more than five figure extermination fees, which I had to end up paying and other tenants fled.  And you know in a single-family residence, pests are just more easily controlled. So they’re really just so many reasons why I think my single families have actually outperformed my apartment buildings.  

John Larson: Wow. You brought up a lot of good points. There are some that I really didn’t even think of.  

Keith Weinhold: Yeah, sure. And you know, there are really more reasons. I mean, just look at supply and demand. Today a lot of contractors are building many new apartments, but they just don’t as often build these low cost, single-family residences that make the best rentals. A lot of them that American Real Estate Investments deals with, so rental, single-family rental demand is vastly outstripping supply. That ought to continue. You know, there’s another thing; if you as an investor, if you think that you can purchase 10 properties, if you just buy one 10-unit apartment building, you have to go ahead and buy that in just one geography, so your ten unit apartment building is only going to be in one location. That’s going to leave you exposed to just one metro markets, economic fortunes, but instead if you buy 10 single family residences where you could have one or two or three in each of American Real Estate Investments markets, you could have three in Kansas City, three and St Louis and four in Dallas for example, and that is just so overlooked.  The market is actually even more important than the property itself; the economic viability. And you’ve really have a way now to be more divisible and spread out your market risk, and then finally in the end when it’s time to sell your property, whether that’s your single family home or your apartment building, just think about who your buyer is going to be. There’s a much greater buyer pool for your single family residence than there is for your apartment building. More buyers can afford the lower price, and unlike apartments, you even have access to a pool of buyers that might want to occupy that single-family residence themselves. So you really got more options in an exit strategy once you’ve held this property for the production of cash flow and hopefully appreciation all that time.  

John Larson: Right. That’s, that’s a great point that you just brought up. That’s actually one of the biggest points that I like to mention, um, is, is just the fact that single family homes, you have a much broader exit strategy. And with an apartment building, you know, you’re really, if you’re gonna exit out of that investment, your buyer’s really just another investor. Whereas with a single family property, you know you could sell to an investor or if you buy in the right markets and the right neighborhoods, you could very easily sell that property to a market or a retail buyer. Right? Who doesn’t care about how much the property runs for, they’ll just pay market value or maybe more to actually win that property to live in with their family?  

Keith Weinhold: That’s right. When you go in, sell an apartment, building the facts, the hardcore capitalization rate needs to make sense or else the person is not gonna be interested in buying it. When you sell a single-family residence and it might be a nice family of four or five that just want to live there and have the peaceable enjoyment of the premises and be in their preferable neighborhood near parks or a good school district or whatever it is. So the strict numbers from an income perspective do not need to make any sense for that single family owner occupant.  

John Larson: Right. Another point that I liked that you brought up, you know, a 10 unit apartment building, right? It would just be in one market. Whereas you even see me, I actually personally invest in five different markets across America because I’ve done it, I’ve identified these markets as providing me with different levels of risk and reward or different rewards for each market, like I like Detroit, Kansas City, and St Louis because they’re actually able to provide me with stronger cash flow or stronger rate of return on rental income. But I love the Dallas market because very, very low vacancy, very, um, very diverse economy. Um, so I feel like if we go through another economic downturn or maybe another little recession here, I don’t see Dallas Fort Worth or Houston being affected too much by something like that. And also I’m seeing higher appreciation in these markets. So that’s just another way that real estate pays you. But leading into my next question, I think that this is a pretty good question too, to piggyback off of the one we just asked, is why do you tell people to stop looking at a property?  

Keith Weinhold: That’s a beautiful question because it’s so counterintuitive, isn’t it? Usually, when people listen to me speak, they get interested in buying property, but yet I often advise people, you need to stop looking at property. And that often stops people in their tracks, and here’s why. Look, most people that invest in real estate have a pretty awful experience. Okay? They’re not very strategic. Oftentimes when that novice investor buys a property, they might buy it on an emotion. Say, for example, they have a round trip commute to the workplace and they keep driving by this pretty yellow duplex twice. Then each day with some really nice landscaping and one day they see a for sale sign outside and they just think, ah, I think it would always be nice to purchase that building, and they kind of purchased that building without any real strategy. Well, look. They just put the property first.  

Keith Weinhold: Look, in real estate, investing in the property is only the fourth most important thing, which blows away a lot of people. Okay, so what’s more important than the property and real estate investing? I’m not saying that property is unimportant, but it’s only the fourth most important thing. The number one thing in real estate investing is look at yourself. What do you want real estate to do for you? Are you looking for appreciation? Do you want tax incentives? Do you want cash flow? Which is still my chief answer and probably the most common answer, or do you want some sort of lifestyle investing where you can enjoy the property a few weeks? What do you want real estate to do for you? So you are number one. The second one to your point, John, and we were just touching on it, is the market, what’s the vibrancy of the economic market that you buy in, because you need to buy a property typically that’s going to be filled with a tenant that has a job, and then the third most important thing is the team. That’s actually something that you do really well at American Real Estate Investments. John, you have some of the best teams in the entire United States. Who’s your property manager? That’s probably the most important part of the team. Are they communicated? Do they care about you and the ROI or do they just care about making their job easy? And then fourth, most fourth most important, is the property. Because of those first three things, you, the market and the team don’t work then the property won’t work either.  

John Larson: You’re absolutely right. And actually that’s what I’m personally investing in my own properties. That’s exactly how I analyze them. First and foremost, what are my goals? Like I said, you know, I found that Kansas City, St Louis and Detroit are great markets to bring in that cash flow because it’s a lower acquisition price, you know, property values in those markets aren’t as high as what they are here in the DFW area. And so that results in a higher cash flow for me. Also, property taxes in those markets are a little bit less than what you’ll experience in Texas. And the market is very important. Of course, the reason why I specifically moved to Texas and moved to Dallas, Fort Worth was because of the market. I saw the people moving here. Um, I saw the jobs moving here and I thought to myself, wow, that looks like a great market.  And then when I saw how low the property values were at the time when I moved into this market, it just made total sense. Now we’ve started to see some prices increase of course, because of the demand that we have for inventory in this market, but then the team, absolutely,. I wouldn’t still invest in a market like Detroit today if I wasn’t from there and I knew the areas as well as I do and plus my family and friends are the ones that find my properties for me, work on my properties and manage my property. So obviously my family and friends is a great strong foundation to use to help me continue my investment goals in the city of Detroit. And then lastly, yes is the property. I mean, I think you have to check all those first three things before you even start to look at what property I want to actually purchase it as an investment.  And always keep in mind, you’re not living in the home, right? That number four needs to really meet what your number one is, which is what are your goals, right? And so you need to make sure that that actual property, that market and that team are going to be able to achieve your number one, what are your goals? So from there, you know, another thing that we’d like to talk about on the show a lot is the different ways that real estate pays you in single-family homes specifically and being a landlord specifically all the different ways that you can actually make money, make a return. And let’s say just being a landlord of a single-family home, um, you have five different ways that you’ve identified how real estate investors are paid. Can you kind of run through those and just kind of give an example of each?  

Keith Weinhold: Yeah. John, I am so beyond excited to talk about this because most people don’t understand that real estate investors are typically paid five ways simultaneously. Even most real estate investors don’t understand all the ways that they’re paid. And in fact, most real estate investing educators can’t even tell you that all the ways real estate investors are paid. So let’s just kind of briefly explore this with a simple example and we’ll kind of add up your five rates of return and there do get to be a few numbers flying around here. But this is really exciting like this is why we do this. So you’re about to learn how real estate investing has made more ordinary wealthy than anything else. I think most people have heard that, but they don’t know how. And you’re going to hear how.  

Keith Weinhold: So, we’ll just say you’ve carefully purchased, just for simplicity of numbers, a $100,000 rental single family home.  And then know that you do have some products in that price range and the rent income exceeds the expenses and yes, you can actually find these properties oftentimes in the United States, Midwest and south. Okay? So if you make a 20 percent down payment on that property, that leaves you with an $80,000 loan. And when you purchase it, the properties are already tenanted. So the first way you’re paid is through appreciation, not just appreciation, but leverage depreciation. So we’ll say in the first year of your purchase, your property appreciates from 100K up to 106K. That is commensurate with real estate’s historic appreciation rate of six percent. All right, now that does not sound very thrilling until you consider that your $6,000 gain is based on your down payment of just $20,000. Well, that’s your ROI formula.  6Kk divided by 20K. That magic of leverage means that you return is already 30 percent, just from this first of five ways that you’re paid.  

Keith Weinhold: And now that gives some people pause when they first hear that, they’re like, how did that happen? How did you just get a 30 percent return? That power of leverage means it’s because you got a six percent return on both the 20K, your skin in the game that you put down as a down payment, and you got that six percent return on the 80K that you borrowed from the bank. That’s called leverage. That’s why you have a $6,000 gain divided by your down payment or just 20K to make 30 percent. And if you understand that, you’re leveraged light bulb just turned on. The second way that you paid is with cash flow. Your rent income minus all of the monthly expenses; vacancy, insurance, maintenance taxes, utilities, and management. And just say in this example, that leaves you with only a $150 of residual income.  Well, that’s $1,800 annually divided by your 20K down payment. That’s another nine percent return. And by the way, this nine percent return from cash flow, that’s the portion known as the cash on cash return. So from the first two ways you’re paid, we’ve already got 30 from leverage appreciation, plus 9  from cash flow. The third way you’re paid is with loan pay down. Now, unlike your own home where you pay down your principal with money you had to earn from your pocket, your tenant pays the monthly principal portion of this $80,000 loan. So if we just use a five percent interest rate on a 30-year fixed amortizing mortgage, that’s $1,176 that the tenant pays down for you annually. Divide that by your skin in the game and that means that’s another return of five percent to you.  

Keith Weinhold: The fourth of five ways you’re paid are your text benefits and this gets pretty difficult to measure.  We’re talking about things like the mortgage interest deduction and something called depreciation, which you can typically use as a tax write off against your rent income. That typically means that you don’t even have to pay tax on all of your rent income with something like a 10:31 exchange, that’s a bit more advanced, but that means you basically get to defer your capital gains tax over and over forever. That’s about another three percent return from tax benefits. And I’m being pretty conservative there. And then the fifth of five ways is your inflation hedging benefit. And you know, this is the one John, that even most advanced investors fail to consider. Look, just like you wouldn’t keep $80,000 in the bank because inflation would erode the purchasing power on your lump of savings; Well look, if you borrow 80K, it erodes the weight of your mortgage debt balance just the same.  

Keith Weinhold: So your 80K loan today has it’s drag diluted over time, as more and more dollars circulate in an economy. So I’d rather pay back 80K in 20 years or 30 years, then I would today, it just gets easier to pay back over time. So that’s the last one. We’re going to call that inflation hedging benefit about another two percent, just with the approximate rate of inflation. If you add up your return from all of those five ways that you’re paid. your year one return from this income property is a whopping 49 percent.  

John Larson: Yeah, that is amazing. And here’s another example. You know there’s one that I like to talk about. It’s equity capture. So let me just give you an example of how this one worked out for this particular investor. Yeah. This is a gentleman. He lives in Denver and Denver became a market that it just doesn’t make sense for cash flowing properties anymore, right? If you want to buy good properties in decent neighborhoods, you know, you’re just not seeing a positive cash flow when you get alone on these properties. So he looked to the DFW market, uh, for his next investments and actually sold a couple of them in Denver. It was him and his parents that owned these two properties and did a 10:31 exchange. So like you just explained. And they bought a property here in a gentrifying area of East Dallas.  Well, my sales price on this home was $285,000 and I believe the property rented for $2,300 a month. The appraisal came back on this property, Keith, at $305,000. I could not even believe it and you know, so my partners are looking at me saying we undersold this property, but no, with a rental property you need to make sure that the numbers make sense. And really this deal only made sense at a $285,000 sales price. But how lucky did this guy get on a totally turnkey property? Didn’t even have to do any work to the home, just signed on the dotted line, got a loan from Graham Parham over at Highlands Mortgage. And next thing you know, here we go. We get an appraisal back for $20,000 more than his actual purchase price.  

Keith Weinhold: Yeah. So that’s a great example of what you could call instant equity, which could, in this case, be a sixth way that an investor is paid. But of course, that’s not really typical. That’s why I didn’t bring it up in the five ways that one is paid. But yeah, I mean that is a potential sixth way. And just to qualify the example of the five ways investors are paid, you know, just note some limitations. We did not factor in your buyer mortgage loan closing costs. But oftentimes the seller can help you pay for those and that increases your cash on cash return. And there are some risks if you buy a property in a losing job market or you hire the wrong property manager, your entire investment could go south. But with a projected 49 percent rate of return, which is incomprehensible to some people until it’s broken down that way, even if one-third of things went wrong, you still have a 32 or 33 percent return in year one from this property.  

Keith Weinhold: This is exactly why real estate has made more ordinary people wealthy than anything else. And John, when you understand all the ways that a real estate investor is paid and you add it up, this is important. This is keeping score. It’s important to know how to keep score in investing because otherwise, some people think that they’re out there winning it. Real estate, when they’re really losing and some people think they’re out there losing when they’re really winning because they don’t understand all these somewhat phantom ways that they’re being paid. So now when you know how you’re paid, you know what to buy, you know what to sell, you know when to sell, you know when to do a cashout refi, you know when to do an exchange. It’s the importance of keeping score.  

John Larson: Exactly. And you know, I myself, I bought my first rental property when I was 25 years old, so I have a 30 year loan on that property as well and you know by the time that property is ready to be paid off with the tenant paying my principal and interest payment down, right by the time that that property is ready to be paid off, I’m going to be only 55 years old and just looking at maybe starting retirement. And many of my other investors and actually people that listen to your show Get Rich Education, they’ve come to me and invested with me. Many of them are young, in their early thirties. Imagine what the returns are going to be like on these properties that we only put 20 percent down on. When we’re ready to retire in 30 years. I mean, we’re just talking about our mid-fifties and early sixties. I mean at that point, these things, the returns are astronomical, so anybody listening to this show that’s young in your twenties, late twenties, early thirties, I’m telling you, get started investing in real estate now while Fannie Mae is still giving out these 30-year low fixed interest rate loans. It just makes total sense.  

Keith Weinhold: Yeah, it has really never been better. If someone wanted to say it’s better in a certain market, five years ago I would have believed it, but it’s rarely been better. And yeah, when you understand all the ways that real estate investing pays you, it’s sort of a game of, compared to what, Well, if you’re not going to put it in strategically purchased cash flowing real estate, then where else would you put it?  

John Larson: Absolutely. Alright, Keith. We’re going to take a quick break and when we get back. I’m going to ask you just a couple more questions, which just a ton of great information here for my audience and I appreciate you being on. We’re going to be back in just a second.    

John Larson: Okay. Welcome back to the Real Estate Cowboys Radio Show. I got my good friend, Keith Weinhold. Hold on the show with me. He is the host of Get Rich Education and he comes with a wealth of knowledge. All right, Keith, we’ve talked about, we’ve covered some great stuff so far and now the Real Estate Cowboys, you know, we like to focus primarily on the Texas market, although I myself invest in many different markets across America, but for this show’s purpose, we really like to talk about the state of Texas and the big major cities here in Texas and more so Dallas, Fort Worth and Houston. What do you personally like about the Texas market for real estate investment opportunities today?  

Keith Weinhold: Well, I live far away from Texas, but I’m an interested investor there myself. I have bought there myself and I’ve walked American Real Estate Investments properties with you. So why Texas of all places in the world? Well, almost incomprehensibly great business-friendly tax incentives are what are luring industries there, and that creates this growing population. And you know, when you have a growing population, it’s easier for you to get the rent increases because they’re all attracted to that new business. Dallas, Fort Worth, also, you know, compared to a lot of other metros that me and my listeners invest in, you just have these really durable brick homes. You have substantial homes and you know, versus coastal investing; in Dallas, Fort Worth, you just have a higher ratio of rent income to purchase price, a high ratio of a higher rent income to a lower purchase price, which is really a chief metric in what converts into profitability for an investor.  And you know, in Dallas, Fort Worth specifically, not just Texas, but Dallas Fort Worth, John that economy is so diverse and it’s so resilient that even in 2009 when we were in the worst housing crisis in generations, Dallas Fort Worth did not feel a lot of pain. In fact, the United States Census Bureau, they classify about 400 MSAs – Metropolitan Statistical Areas  – and I’m often in a lot of these, traveling to markets for investors. And you know, what’s specific to Dallas, Fort Worth? I think Dallas Fort Worth is the most recession resilient Metro of all 400 in the United States, for a lot of those reasons that I just described. So I’m a buyer and an investor there myself.  

John Larson: Yeah, that’s all great points and one thing that I can say about Dallas Fort Worth, and I’ve operated in a lot of different major metros here in the U.S., and so have my partners. We’ve actually operated in 12 different markets in the U.S., and I will tell you one thing about the Dallas market that has really shocked me since we’ve been investing here since 2012. I mean there are areas of Dallas Fort Worth that have, you want to talk about rent appreciation; some of these areas have appreciated by 30 percent just on the amount that we can charge for rent in these areas, and I truly believe it’s because of how great the economy is here, and wages; keep increasing year over year and the demand for property is causing not only increases in pricing on the actual value side, right? But also with the rental income that you can charge for these homes.  And I know plenty of landlords here that have owned a rental portfolio for going on a decade or more in the DFW area, and I look at some of their portfolios and I’m like, wow, why? Why are you only charging $1,200 for rent in this neighborhood? I’m charging $1550 and getting it. And so some of these landlords don’t even realize that they’re leaving money on the table. And it’s probably because they’re managing themselves, or they’re using a third-party property management company that just doesn’t have the investors’ interests at heart. Right? They’re just trying to keep that tenant in that property and not trying to cause any friction by increasing rents on them. But rents have been increasing rapidly. And even with our current portfolio and our investor’s portfolio, each year we ask for at least a $50 increase year over year. And when the tenant goes to sign a two-year lease, we ask for an escalator in year two as well. So, in most cases, my investors are seeing $100 return over two years or $100 increase on rental income over two years. So that’s another reason why I just really love the Dallas Fort Worth market and I just feel like there’s enough. There’s no real end in sight as far as I’m concerned. I just keep seeing it getting stronger and stronger.  

Keith Weinhold: John, you know what’s really interesting about rent increases is that most investors underestimate the power of that. But just to use a very simple example, let’s just say a property has a rent income of $1,000. That’s the gross rent amount for the investor. And just say you get a three percent. You mentioned about a $50 increase, but let’s just say in this case you only got a three percent increase or a $30 increase on that $1,000 rent income. But look, from that $1,000 rent income, your cash flow before the rent increase was $200 bucks. Your cashflow just went from $200 up to $230. Well, that three percent rent increase to the tenant, which they will usually be okay with, that is a 15 percent rent increase on your cash flow. Your cash flow went from $200 up to $230. If you extrapolate that effect across your entire portfolio, your cash flow, the money you feel in your pocket every month, just went up 15 percent even though you only made a three percent rent increase.  

John Larson: Yep. There’s so much power in that and you know, it goes back to analyzing markets, right? You know, I don’t really see rent increases in the Detroit area or the Kansas City area, the St Louis area. I’m more so focused on a low B to mid B type of property. So you’re really in a true entry level, middle class to middle class type of neighborhood where you know, those markets don’t have as diverse of an economy is a DFW does. They’re not experiencing the type of population growth that DFW is experiencing. So rents in those neighborhoods tend to stay stagnant. Like you just said, you might be able to get a three percent increase, but that’s probably the best you’re going to get in those types of areas. But when you’re looking at your number two and the four most important things to invest to look at in a real estate investment, the market, you look to a market like a Dallas Fort Worth, or some of these other growing markets across America, you can get these $50 to maybe $100 increases year over year and eventually they’re going to plateau, right?  There’s certain neighborhoods in the major metros where you know, you can’t increase the rent too much or you’re just going to price yourself out. But what I’ve seen from 2012 in this market till today, just six years, like I said, I’m seeing close to 30 percent or sometimes slightly even more than that. Rent increased from 2012 to today. So there’s not many markets in America that can can provide that type of increase and Dallas. Fort Worth is one of them. So now let’s talk a little bit about, you know, we discuss a lot about diversifying over different property classes, diversifying into different markets, but what is your opinion about diversifying outside of the US? I know that you invest in Panama currently. Um, I took you down to Belize a few months ago. Just tell me a little bit about what your impression is, and what your outlook is and what your advice would be to anybody listening to this show about diversifying outside of the US and then maybe kind of touch a little bit on Belize and why you like Belize as a good investment opportunity.  

Keith Weinhold: Yeah. I do invest internationally. So, you know, I would challenge the listener here to not be constrained by not only state borders but international borders. So one thing I invest in, and this is going to sound really exotic to people, but remember, we don’t want to do what’s usual in life and in our investing life, we want to do what’s unusual. What is usual? Well, you know, most people we’re kind of overworked and underpaid and overweight and maybe they don’t have their relationships the way they want them. So you always want to, you know, do things that are a bit outside the box. That’s what successful people do. One thing, I own our coffee farm parcels in Panama. It can be bought for under $20,000 each for a half-acre parcel land that’s titled to you. Turnkey managed with a provider that I trust in, you know, think about what humans need.  Humans need a place to live. That’s why I primarily invest in residential real estate, but they also need to eat food. This is agricultural investing that we’re talking about. The world adds 200,000 people every day and they all need to eat and they all need to sleep somewhere as well. So invest in things that are going to have sustainable demand. Technology changes a lot of things, but it won’t be anytime soon that people need to live somewhere and eat somewhere and you know, you bring up Belize, John, and Placencia, Belize, where we went a few months ago where you have an opportunity to invest in resort property, so again, it’s residential. You get to diversify into something that’s something you might actually enjoy using yourself for a few months a year. With these resort developments in Placencia Belize, I invest in Belize, myself personally. And why Belize of all places?  Well, a lot of people don’t realize Belize is only a two hour flight from Miami or Houston, or about two and a half hours from Dallas. So it is one of the closest exotic tropical destinations you can go to. I mean, just compare that to how far away Hawaii is. Even though it’s part of the United States, Hawaii is just not accessible to very many people. Belize is a stable country. You have government officials, they’re supportive of development. The Belizian currency is pegged to the US dollar two to one. It’s always just a two to one exchange rates, so it doesn’t float. And you don’t have the currency risk that you do in some other countries. And the other great thing about Belize is that it is the only English speaking nation in Latin America. It’s very easy for you to get around there. Everything from menus to real estate contracts are in English and it’s just such an underdeveloped opportunity.  There are still fewer than 400,000 that live in the entire nation of Belize. You really have some great opportunity for some underutilized real estate in this New Jersey-sized nation of Belize. So close to the U.S. and just astonishingly underdeveloped and inexpensive.  

John Larson: Yeah, I saw a stat that said Belize is within five hours of 60 percent of the US. That’s amazing.  

Keith Weinhold: That’s amazing. And you can sure cannot say that about Hawaii and you know, a place like Belize, um, that is what I would call an immature market. You know when you, the listener right now, you might be listening in Philadelphia or St Louis or Pensacola, Florida, wherever you live, you probably live in a mature market where you know the infrastructure has already been built up and there are plenty of good amenities there and you cross over a bridge on your commute to work and you don’t even think anything of it because you live in mature environment. But there, in Placencia, Belize, you have a safe, nearby place to invest in a place that still has not matured, so there’s potentially more upside in Placencia, Belize; really then nearly any place I’ve seen in the entire world that still in close proximity to the United States.  

John Larson: Absolutely. Well, Keith, you’ve given a ton of great knowledge and a great experience here on today’s show. Lastly, how can our audience learn more about you?  

Keith Weinhold: It’s probably the Get Rich Education podcast and Get Rich Education.com. And you know, I would tell you that wherever you get your financial information from, learn from somebody that’s actually doing it every day. Not someone that just teaches it. So, I know there’s a good chance you’re probably already listening. Um, you know, we talk about how to actually build real estate wealth with an abundance mindset. Um, Robert Kiyosaki and the Rich Dad Advisors are pretty frequent guests of mine. So again, that’s GetRichEducation.com and the Get Rich Education Podcast. 

John Larson: All right, perfect. Well, Keith, it was a lot of fun. Thank you so much for being on. And, and let’s do it again real soon.  

Keith Weinhold: Oh, John talking about this stuff fires me up. Thanks so much for having me! 

John Larson: No problem. Talk to you soon.   

John Larson: Wow. What a great interview. Thanks again to Keith for joining me on this week’s episode of real Real Estate Cowboys. Uh, just a lot of great information there. I always enjoy spending time with Keith. I learn something new every time we are spending time together. Before I leave you today, I just want to leave you with a few quotes that I really love that, uh, that Keith says, and I’ve been a fan of his podcast now for over a year. But he has a couple of a few great quotes that I want to leave you with. One, don’t follow money, make money follow you. Um, another one that I really like is what’s your ROTI; not just your ROI, but what is your ROTI, your return on time invested? And I think that that’s a great quote when you are talking about what we do here at the Real Estate Cowboys and that’s pretty much the message that I want to get through to my listeners as well.  

John Larson: Passive real estate investing is a great way to maximize your wealth. As an investor you are leveraging other experts in other markets that maybe make more sense than your own backyard to invest in and you’re using other people’s knowledge and expertise to get you involved in building a single family rental portfolio, or getting you the dream of owning a private island or luxury vacation home in the Caribbean or you know, if you’re someone that’s looking for very, very low risk, you get the opportunity to become a lender for some of these real estate investors or developers, and just piggyback on their project by being the bank and earning a fixed rate of return on your money. There’s so many options out there. And so Keith, you know, he’s a firm believer in a lot of this stuff that we do as well. But, um, I love that: ROTI – what is your return on time invested in? If you choose the right team, you know, then you’re not going to have very much time invested. You’re just going to be reaping the benefits of being a real estate investor.  

John Larson: And so that’s what this show’s all about. Thank you all for tuning into this show and please subscribe to the real estate podcast on Itunes so you can receive updates each week when a new show’s available. I believe every new show’s available on Sunday each week. And so another thing I’ll leave you with if you are interested in getting started in any passive income real estate investment opportunities, please feel free to go through the RealEstateCowboysDFW.com, put in your information. You will be able to gain access to weekly inventory updates, nonexclusive passive income opportunities in the real estate markets in America,  single family residential development opportunities in Dallas and Houston, the two strongest markets in America, or new single-family residential buildings.  I’m talking about single-family rental properties in the DFW and Houston markets, also in St Louis and Kansas City, which are great markets for cashflow.  

John Larson: Um, we also have some great, great opportunities in the Caribbean in Belize, specifically southern Belize, where you could be the owner of a private island or a luxury vacation home for a fraction of the cost, which, that’s what lifestyle investing is all about. And so please go to RealEstateCowboysDFW.com, lots of great stuff there. You’ll also be able to download our passive income starter kit. You’ll be able to take a quiz called the passive investor quiz. Find out what type of investor you are. Are you a private money investor? Are you a single family rental investor? Are you a vacation lifestyle investor? Maybe you’re all three. Take that quiz and find out. And so  like I said, go to RealEstateCowboysDFW.com. And until next time this is John Larson. See you later, Real Estate Cowboys.  

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.