Waiting on lower rates? You're losing $15,000+ equity to Save $150/mo

[00:00:00 – 00:00:10] Brett: It's five o' clock somewhere. Real Estate podcast. Brett Bernard, Jeff McNett, Nick Gibson and our esteemed dipshit producer is back from over the pond. Richard. Hey, Richard. Welcome.
[00:00:10 – 00:00:12] Richard: Hello. Hello. Kunaz.
[00:00:12 – 00:00:15] Brett: How was your. How was your beans and toast while you're over in.
[00:00:16 – 00:00:17] Richard: Over him?
[00:00:17 – 00:00:18] Brett: Where over? Wherever you're from.
[00:00:19 – 00:00:20] Jeff: Where'd you go? England.
[00:00:20 – 00:00:21] Richard: No.
[00:00:21 – 00:00:21] Brett: England?
[00:00:21 – 00:00:26] Richard: No. Didn't go to England. Bother with the uk? No, I didn't.
[00:00:26 – 00:00:26] Jeff: Where'd you go?
[00:00:26 – 00:00:29] Richard: I went to Portugal, Germany and Azerbaijan.
[00:00:29 – 00:00:33] Jeff: Oh, okay. I thought you were on your annual pilgrimage to see your family.
[00:00:33 – 00:00:35] Brett: Should stop by and saw my mother in law and my brother in law.
[00:00:35 – 00:00:37] Richard: Heck no. Where do they live?
[00:00:38 – 00:00:40] Brett: Right outside of. What's the major city there?
[00:00:40 – 00:00:42] Richard: There's loads of major cities in Germany.
[00:00:42 – 00:00:43] Brett: I don't know they live in Germany.
[00:00:43 – 00:00:44] Richard: Frankfurt.
[00:00:45 – 00:00:46] Jeff: Yeah. Close to Dresden.
[00:00:46 – 00:00:47] Brett: Look.
[00:00:47 – 00:00:51] Jeff: How is Portugal? Yeah, never been. How was Portugal? Beautiful.
[00:00:51 – 00:00:54] Richard: I think they focus too much on pig bacon.
[00:00:54 – 00:00:56] Brett: I mean, who doesn't love bacon?
[00:00:56 – 00:01:05] Richard: Well, bacon I like, but the too many iterations of pork, particularly when you've got cardiovascular issues and you like vegetables.
[00:01:06 – 00:01:10] Brett: There's no proven science that says pork causes cardiovascular issues.
[00:01:10 – 00:01:13] Jeff: I get your point. It's kind of like Mexican restaurants.
[00:01:13 – 00:01:14] Richard: What are you looking at?
[00:01:14 – 00:01:15] Brett: My own science.
[00:01:15 – 00:01:16] Jeff: There are seven.
[00:01:16 – 00:01:17] Brett: I've been eating it for years. Look at me.
[00:01:17 – 00:01:22] Jeff: There are 700 items. There are 700 items on a Mexican menu. And it's all the same.
[00:01:23 – 00:01:23] Brett: Yeah.
[00:01:23 – 00:01:25] Jeff: Meat and cheese and some form of.
[00:01:25 – 00:01:31] Brett: That's all Taco bell is. It's 80 different items just put together in a different form. One's got chicken, one's got beef.
[00:01:31 – 00:01:45] Richard: But we were in, we were in Baku in Azerbaijan because we flew my wife's dad there so we could meet up with him. And I have to say, Azerbaijan is an amazing country and amazing people.
[00:01:45 – 00:01:48] Brett: So what part, what continent is that on?
[00:01:48 – 00:01:53] Richard: It's open for debate. They. They see themselves as in the. The caucus region.
[00:01:54 – 00:01:54] Brett: Yeah.
[00:01:54 – 00:02:03] Richard: But it's caught between Europe and Asia. Ah, so you've got Russia to the north and you've got Iran to the south.
[00:02:04 – 00:02:10] Brett: I'm trying to picture where it is. I know we got Europe, we got Asia. So you're saying it's somewhere in the middle?
[00:02:10 – 00:02:14] Richard: Yeah. If you go to the furthest north of Iran.
[00:02:14 – 00:02:14] Brett: Right.
[00:02:14 – 00:02:18] Richard: It borders Azerbaijan and it borders Turkey.
[00:02:18 – 00:02:18] Brett: Gotcha.
[00:02:19 – 00:02:20] Jeff: Stable over there.
[00:02:20 – 00:02:22] Richard: To its east, it has the Caspian Sea.
[00:02:23 – 00:02:24] Jeff: Stable area.
[00:02:24 – 00:02:32] Richard: It. It's stable as long as you stay central. If you go towards the borders in any direction, you might be asking for trouble.
[00:02:32 – 00:02:35] Jeff: Didn't know Rich was an adventurous welcome home.
[00:02:37 – 00:02:52] Brett: All right, today we are going to talk about interest rates, where the current Fed rate is, where the basic rates are for individuals and what we expect over the next six months, because obviously what we expected in the previous six months didn't happen. So y' all stick around. We'll be right back.
[00:02:55 – 00:03:19] Sponsorship: We are sponsored by Title Assurance and Escrow, a title company here in Cordova that does all of our closings, title work, escrows, and we only use Title Assurance and escrow. That relationship is very important because we can get things done for our investors quickly and easily. So to speak with Title Assurance and escrow, call 901-737-3333. Ask for Chris or April.
[00:03:23 – 00:03:25] Brett: All right, so let's get into what'd you say we were going to break?
[00:03:26 – 00:03:48] Jeff: I appreciate your optimism and enthusiasm. You've been telling me for almost nine months now that it'll, it'll get better next month. It'll get better next month. Just give it another month. I will say, let me say this together, let me say this. So if you're an investor sitting on the fence waiting on an interest rate to go down a half a point so you can save $18 a month in your.
[00:03:48 – 00:03:50] Brett: And that's what I want to get into.
[00:03:50 – 00:04:05] Jeff: If you're, if you're one of those guys or gals that are waiting on that to save $18 a month, by the time you get through waiting on that, the value of that house is going to jump 30, $40,000 and that $18 is going to turn into $300 more a month.
[00:04:05 – 00:04:08] Brett: Well, here's the interesting you need to.
[00:04:08 – 00:04:11] Jeff: Jump on it now and buy up everything you can as quick as you can.
[00:04:11 – 00:05:12] Brett: So I read an article in Wall Street Journal and they were talking about interest rates, housing, the real estate market, how some of the big brokerages are, you know, they've seen about an 18% drop in their gross sales like ReMax and cry like the big ones. But at the same time, they said that they have seen increases in property values. So he said, while the good news is it's a horrible time to sell your home, most, most property owners, on average across America, which I don't know if I agree with this number, they may be right. They said on average, across America, the average homeowner has seen an increase in equity of $140,000 in the last five years. They're also saying that while the interest rates are up and there aren't enough buyers out there, inventory is piling up. They said which is a great thing for pricing, but it's also a great thing for homeowners because they're seeing an increase in equity even though no one's buying, values are still going up. And I'm curious, I didn't really deep dive deep into it, but I'm curious as to what's driving the cost. Well, I'm going to tell you, no one's buying because typically supply and demand go hand in hand. Well, Jeff, you said you weren't going to say anything.
[00:05:12 – 00:05:18] Jeff: I'm just telling you we have seen an increase over the past five years, but it's kind of flatlined right now.
[00:05:18 – 00:05:20] Brett: Because it is settled down.
[00:05:20 – 00:05:59] Jeff: Now, the problem for an investor in this market with the abundance of inventory is they think they can come in here and just start lowballing these offers. And I'm telling you right now, if you have an owner of a property that's got a renter in it producing 14.5% ROI, he's not. And he's. He doesn't have to sell the property. He may have it listed. He may want to liquidate it for some stuff down the road, but he doesn't have to sell that property. He's not going to sell a property below market value just because you made an offer on. I mean, because he's cash flowing. He's got a renter, he's 14% ROI.
[00:05:59 – 00:05:59] Brett: So.
[00:06:00 – 00:06:08] Jeff: So the mindset that you think you can come in here and start offering $120,000 for $180,000 houses, just ludicrous.
[00:06:09 – 00:07:03] Brett: Well, and I had a phone call with someone who will remain unnamed out of state investor who kind of chastised me when he was talking about real estate values. I said, yeah, but you know, Memphis is a very different market than the rest of the country. We don't really tank, we don't really skyrocket. We steadily grow. And I said, if we get a little dip here and there, it bounces back fairly quickly. So going into, I predict, and a lot of people do, that we're going to start seeing things level off, inventory drop off the shelves and values start to go up again. As soon as you have a bunch of buyers scrambling for the same piece of inventory, that's going to change everything. The supply and demand rule kicks into gear. Well, you know, he told me that I should never say that. That ruins my credibility. And I'm like, listen, you don't live in Memphis. I've been working here for 10 years. I said, I'm giving you real life experience. I Said you. This is not the first rodeo I've gone through with something like this. I've been through this four times since I got my license.
[00:07:03 – 00:07:04] Jeff: So you tarnished.
[00:07:04 – 00:07:12] Brett: I guarantee you every single time. It came back bigger and stronger the following year. As soon as things. As soon as the rates drop, things are going to take off.
[00:07:12 – 00:07:16] Jeff: You tarnished your credibility because you were being honest with.
[00:07:16 – 00:07:17] Nick: You told somebody the truth is that.
[00:07:18 – 00:07:27] Brett: It is the truth. I mean, look, I've been doing a lot. If Glenn Green was sitting in his room with us today, he'll tell you, I've been to this so many times, I can tell you with 90% surety next year is going to be a gangbuster year.
[00:07:27 – 00:07:32] Jeff: I never heard him tell me next year is going to be a gangbuster. He always tells me next month.
[00:07:32 – 00:07:35] Richard: Yeah, but Glenn told me he didn't like to talk to you.
[00:07:35 – 00:07:36] Brett: Yeah, that's right.
[00:07:36 – 00:07:41] Jeff: Well, we won't even get into how he felt about you, but we'll do that over dinner another day.
[00:07:42 – 00:07:59] Brett: It was no secret he didn't like British. The truth of the matter is, is that, yes, Arizona has a lot. Some new legal problems coming from Arizona. Y' all need to look up Arizona real estate legal issues coming up. There's some big problems about that state and their real estate brokerages and their. Their real estate associations.
[00:08:00 – 00:08:01] Jeff: What are they doing?
[00:08:01 – 00:08:15] Brett: This is not a political dig, but a lot of that was initiated by liberal ideology on these brokerages that are making all this money selling these properties, but that the poor people weren't allowed to, didn't have the same opportunity to.
[00:08:15 – 00:08:17] Jeff: Buy those properties that's been going on.
[00:08:17 – 00:08:21] Brett: So they're calling it redlining. Not redlining. They're using a different term.
[00:08:21 – 00:08:27] Jeff: Well, they're using a more politically correct term now, but they've been redlining for 100 years and they still do it.
[00:08:27 – 00:08:40] Brett: Yeah, they do. So with that said, I want to talk about what we expect the next six months. Okay, Jeff, you want me. You want me? Here you say I was wrong last six months, I was wrong. Now are you happy?
[00:08:40 – 00:08:41] Jeff: I could have had your credibility.
[00:08:41 – 00:08:43] Brett: Credibility is garbage now. Thank you.
[00:08:43 – 00:08:47] Jeff: Bet him every month I could have had nine bottles of Johnnie Walker Blue on my shirt.
[00:08:47 – 00:08:58] Brett: No, you had. You'd have had four and a half. I'd have had the other four and a half because I'd have drank it with you. That's the good news about my bet with him with Johnny Walker is I always know we're gonna drink it. So it's. I'm just buying it for us.
[00:08:58 – 00:08:59] Nick: Win, win.
[00:08:59 – 00:08:59] Brett: Yeah.
[00:08:59 – 00:09:01] Jeff: So what is it about Johnny Walker.
[00:09:01 – 00:09:05] Richard: That you particularly like? Because I don't get people who drink spirits.
[00:09:05 – 00:09:16] Brett: We don't drink spirits. We drink alcohol liquor. We don't call it spirits here. Spirits are what we do after we're dead in, in the damn British.
[00:09:16 – 00:09:22] Richard: If you go to abc, which is the state, they do call it spirits. They call it spirits. Wine and spirits.
[00:09:23 – 00:09:37] Brett: Yeah, that is true. There is a store I know called Wine and Spirits. Well, okay. I like Johnnie Walker simply because it's got a not a high peat and a good smoky flavor. Better than any scotch on the planet.
[00:09:37 – 00:09:38] Richard: Remind you of anyone?
[00:09:38 – 00:09:39] Brett: Yeah, me.
[00:09:41 – 00:10:05] Richard: If I get back to the topic, you know we were talking about the, the five year increase and we have seen significant increase over five years. So because I keep track of my own home and people around me that are first time buyers buying houses, we have seen a little bit of a dip in the value of homes maybe in the last three, four months as a result of more property coming on the market.
[00:10:06 – 00:10:20] Brett: Well, it's at least flat. And let's face it, real estate is a rubber band. So what happened in 2024 is affecting the first quarter of 2025. What happened in the first quarter of 2025 is affecting the second quarter of 2025 and so on.
[00:10:20 – 00:10:33] Jeff: Brett, our problem is, and I'm almost as optimistic as you are, but the problem is they could drop the rates tomorrow. It's going to take the market six to nine months to catch up with that.
[00:10:33 – 00:10:57] Brett: Well, I don't maybe on the owner OC side now we're seeing a lot of activity on the homeowner side in that 200,000 mark and down. A lot of FHA and VA buyers are hitting the market hard. I'm getting calls every my listings but these are investment properties are usually tenant occupied. So you really can't, they can't buy them. Jeff's dealing with one right now is a VA has very little money, is approved for 195.
[00:10:57 – 00:10:59] Jeff: You said about 200.
[00:10:59 – 00:11:13] Brett: 200 so. So that market is beginning to pick up. The investor market is still dribbling slowly because the mindset is the interest rates. Again the going rate right now on DSCR is around seven, seven and a half percent.
[00:11:13 – 00:11:16] Jeff: Why does everybody get so emotional over the interest rates?
[00:11:16 – 00:12:15] Brett: Because it's an emotional investment. Well somehow I said this before in a previous somehow in the past 20 years we've gotten away from being smart investors to being emotional investors. And when you bring your emotion into Investment, it skewers your ability to understand the investment on the positive side and the negative side. So we have investors that look at everything as through rose colored glasses. They never look at the possible negative side. And then we have guys that do nothing but look at the negative side. And when you got those two personalities out there as investors, it's naturally going to drive them to sit on the fence and wait until everything's perfect. I'll tell you that if you wait till everything's perfect, you might as well go stick your money in a jar and stick it in the sand. Because you're never going to be a good investor if you're not. If you're just going to wait for the prime opportunity. Investment is risk. Right? And higher the risk, the bigger potential reward you have. And we're in the same boat here. What did Joe Garner say the difference between a 1 point on interest rate as far as a payment would be.
[00:12:15 – 00:12:17] Nick: You remember, it wasn't much.
[00:12:17 – 00:12:18] Brett: It's like 50 bucks.
[00:12:18 – 00:12:21] Jeff: No, it's not even that. You know, 30, 40 bucks.
[00:12:21 – 00:12:23] Brett: You're gonna talk to your mic or.
[00:12:23 – 00:12:33] Richard: You'Re gonna just keep 30, 40 bucks, every percentage. So if it's 6%. So for every hundred thousand you borrow at 6%, that will cost you $600.
[00:12:34 – 00:12:38] Brett: That would be the principal a year, 50 bucks a month.
[00:12:39 – 00:12:40] Richard: No, no, per month.
[00:12:40 – 00:12:41] Brett: 600Amonth.
[00:12:41 – 00:12:48] Richard: So your principal per month will be $600 on every hundred thousand you borrow at 6%.
[00:12:48 – 00:13:04] Brett: Oh, gotcha, gotcha. Okay, so, so let's, let's figure that out. Let's take a $150,000 brand new construction property and today you can get seven and a half percent. If you wait four months you can get six and a half. That's going to be, would you say one hundred and so one hundred and fifty bucks.
[00:13:04 – 00:13:18] Nick: Currently, you know, let's say you wait a month or six months or a year to, for interest rates to go down. One point during that time, if you had purchased, you've already had some debt pay down, you know, you generated some cash flow and the property values already increased. So.
[00:13:18 – 00:13:51] Brett: Well, how much have you. What's going to happen as soon as interest rates drop? People are going to start buying market rates, market rates are going to go up, values are going to go up. So let's say for instance, that hundred dollars a month is what you're currently in jeopardy of spending on the higher interest rate versus waiting for it to stop. But a year from now, that same house you bought for 150 is now 162, 165. That's 15 grand. How long of $100 a month savings did you just got with your new interest rate is going to take you to make up the 15 grand you pissed away by sitting on the fence?
[00:13:52 – 00:13:57] Jeff: Do you think it's going to bounce back as quick as it dove, though? Here's, here's why I asked this.
[00:13:57 – 00:13:58] Brett: I don't know.
[00:13:58 – 00:14:09] Jeff: We run a cost market analysis on that house on Snowden. 242. 40 all day long, right. It's been nine months and now there's three ones in there.
[00:14:09 – 00:14:09] Brett: This is.
[00:14:10 – 00:14:13] Jeff: There's three ones in there for 189. Nine.
[00:14:13 – 00:14:16] Brett: That's. The apple sank. We're talking about the orange market, right?
[00:14:16 – 00:14:19] Jeff: I know, but it sank $50,000 because.
[00:14:19 – 00:14:29] Brett: No one was buying owner occupant homes. So. So when you're not buying own occupant homes, the homes around you, what do those sellers do? They lower their price. Then one of them sells a new baseline.
[00:14:29 – 00:14:34] Jeff: If it tanked that much, is it going to take six months to get back up to its original value?
[00:14:35 – 00:15:08] Brett: I don't know. I mean, I can tell you, based on your experience, the last. In 2008, when things crashed out completely, Glenn and I were here. We were with title insurance and escrow at that time. By 2009, things had stabilized. That was a year. By 2010, we had met our previous 2008 numbers. By 2011, we'd exceeded them. That was three years later. So if the 2008 crash, as bad as it was, could bounce back to even within 24 months, this little bit of a dip should be able to bounce back within, I would say, three to six months.
[00:15:08 – 00:15:16] Jeff: Well, you got to understand too, when the country took that hit in 2008, it barely phased the Memphis market.
[00:15:16 – 00:15:17] Brett: Exactly.
[00:15:17 – 00:15:24] Jeff: It wasn't like California, New York, Florida and all that. I mean, we dipped what, 5, 6% as opposed to 40 or 50%.
[00:15:24 – 00:15:32] Brett: Our biggest loss, our biggest loss, our largest number was in August of 2008, and it was 21.8%.
[00:15:32 – 00:15:33] Jeff: But we bounced back.
[00:15:33 – 00:15:37] Brett: But immediately following that, going into the fall, we were already going the other direction.
[00:15:37 – 00:15:39] Jeff: We bounced back pretty quick, and I.
[00:15:39 – 00:15:44] Brett: Don'T know if Everybody else was 40, 50 and 60% upside down. Our biggest point was 21%, but we.
[00:15:44 – 00:15:46] Jeff: Bounced back quicker than the rest of the nation.
[00:15:46 – 00:15:51] Brett: By the following year, we were even. And by the year exceeding that, we had already gone up another 8, 10%.
[00:15:51 – 00:15:56] Jeff: But why did we bounce back so quick? Is it because of moderate housing prices?
[00:15:56 – 00:17:02] Brett: I can tell you why. Because smart investors realize the opportunity. And when 2008 hit, the smart investors came in from all around the world and they started just grabbing shovels and scooping up everything to get their hands on at whatever price they. They could get it at, because they knew that they were getting a deal. And they also knew that within a year or two, because of the way the Memphis market is designed and the amount of renters we have and the type of the amount of inventory we currently roll through every single month, that it was going to bounce back. And when it bounced back, it was going to come back strong. And it did. We know an individual, I won't say his name, but he borrowed money from his dad and scooped up a bunch of buildings in 2008. And I think in 2001, I sold a bunch of them. He probably put five, six million dollars in his pocket. Now, everything I dislike about that guy, the one thing I will say is he was smart. He knew what he was doing. So my point is, while all of you investors are sitting on your hands or thinking this is 2008, I'm going to roll into Memphis and just, I know house is listed for 120, but here's an $80,000 offer. You're never going to get a deal like that done.
[00:17:02 – 00:17:04] Jeff: Next call. I get a call because there are.
[00:17:04 – 00:17:28] Brett: A thousand other people in the world right now looking at the Memphis market, watching it daily, looking at properties, checking values, looking at rent comps. I'm just telling you, my Japanese guys, they have Memphis on their computers, and every morning, Mr. Taniyama and Mr. Sumoto, they say they get up every single morning and they check the real estate market in Memphis and they watch it and they've got levers, and soon as those levers get hit, they're going to start buying.
[00:17:28 – 00:17:40] Jeff: When are you going to flood some of those investors to Nick and I? Because all we get or $80,000 offers on $200,000 properties, here's the bottom line. We got to get rid of the inventory.
[00:17:40 – 00:17:41] Brett: Yep.
[00:17:41 – 00:17:42] Jeff: To drive prices, it's going to go quick.
[00:17:42 – 00:17:43] Brett: Once rate.
[00:17:43 – 00:17:50] Jeff: The quickest way to do that is get a rate drop, since everybody in the world thinks the rate drops. The most important investing decision I'll ever make.
[00:17:50 – 00:18:47] Nick: So slightly off topic from this, I want to bring up something that. Because I've dealt with this personally, and it could be something that somebody else is, you know, facing. So we've got a couple of properties that we purchased using a HELOC and we're working on A DSCR cash out refi. Well, I've talked to all of our local lenders that we've had on the show that are great people, love working with them. That couldn't necessarily help me in the exact situation because we've recently deeded them over to a new LLC to hold the company or hold the properties. Well, I just got on the phone and started calling people and I called Frank, who's been on here multiple times and where everybody else had anywhere from 3 month to 12 month seasoning periods for the LLC. Frank said, oh yeah, I can help you with that. No problem. No seasoning period. Yeah. So we're working on getting that deal done, but it took me about six different people, different lenders before I finally found somebody that said, oh yeah, in this specific situation, I can help you, no problem.
[00:18:47 – 00:18:51] Jeff: Well, to your point, as an investor, you have to do your due diligence and find the people that can get it done for you.
[00:18:51 – 00:19:03] Nick: And there's certain people that are great at certain aspects, but whatever your situation is, sometimes you're going to have to get a little creative and do some legwork. And there is a way to do it if you want to do it. You just have to work for it sometimes.
[00:19:03 – 00:19:32] Brett: Every investor that wants to invest in Memphis should be doing it right now because the $100 a month increase payment you're going to get today versus the what I will consider to be substantial growth in the next three to four years once the rates drop in value. That's why you invest to begin with. If you're investing because you only care about the cash flow, you need to go invest in something else. Right. Because real estate investing is not about the cash flow. Yes, it helps. You want to break even, you want to pay all this.
[00:19:32 – 00:19:33] Nick: One of the beautiful things about real.
[00:19:33 – 00:19:56] Brett: Estate investing, it should be, but it shouldn't be, your main focus. Your main focus should be equity growth. Equity growth and value, because that's where your millionaires are made. You think Donald Trump has $10 billion sitting in his bank account? No. But he owns $10 billion worth of real estate. Right. And they probably break even and they make a little money, they lose a little money, but the value of that asset is what makes a billionaire.
[00:19:56 – 00:20:21] Jeff: And remember what Glenn said, which is one of the most important things he ever said, you take that little cash flow, $100, $400 a month or whatever it is, and you pour it right back into that investment, pay the loan off. You don't go buy a ski boat, you don't Go buy a new car with it, you pour it back into that house, you build your reserve up. And when you have a reserve built up, you. You start buying that mortgage down.
[00:20:21 – 00:20:22] Brett: Right. Well, that's.
[00:20:22 – 00:20:26] Jeff: If you'll call us, we can tell you how to. We can show you how to do that in five years.
[00:20:26 – 00:20:39] Brett: Elon Musk. If somebody kidnapped Elon Musk's kids and said, we want a billion dollars in cash tomorrow, he doesn't have access to a billion dollars. But he also, he owns a crapload of stock. That makes him the richest man in the world. But it's not cash he has.
[00:20:39 – 00:20:41] Nick: He can draw against it just like you can draw against it.
[00:20:41 – 00:20:48] Brett: But I'm saying Elon Musk is a billionaire and the richest man in the world from asset wealth, not cash. Well, that's because he doesn't have that much cash as lending.
[00:20:48 – 00:20:51] Jeff: Well, he's learned the art of leveraging other people money.
[00:20:51 – 00:20:51] Brett: Correct.
[00:20:52 – 00:21:01] Jeff: If he were to go buy a car tomorrow, a house, an island or whatever, if he were to buy the moon, he wouldn't pay cash for it. He would leverage somebody else's money, borrow.
[00:21:01 – 00:21:34] Brett: Money from the bank, and then you let either the business operation or the tenant or whatever your business is or the customer pay your money back to the bank. So therefore, even if you're breaking even, that asset that you just purchased, you borrowed from the bank and someone else is paying the note, I mean, he bought it. What do you have invested in that asset? And all of a sudden, if 10 years from now it's paid off, it's worth $250,000, then you've got a net asset worth $250,000 that now has cash flow, but you also have 250 grand in net worth and you can draw.
[00:21:34 – 00:21:36] Nick: Against that without the tax consequences, correct?
[00:21:36 – 00:21:37] Brett: That's correct.
[00:21:37 – 00:21:49] Nick: And that's what I tell people all the time. The beautiful thing about real estate is you're making money in four different ways. In a rental property, you've got cash flow, so you're making money. That way you get appreciation. So your net worth is going up every month.
[00:21:49 – 00:21:50] Brett: And depreciation.
[00:21:50 – 00:21:53] Nick: Yeah. You're getting debt pay down, and then you're getting the positive tax consequences and.
[00:21:53 – 00:21:55] Brett: You get depreciation more different ways that.
[00:21:55 – 00:21:56] Nick: You can make money right there.
[00:21:56 – 00:22:08] Brett: And that's the trick to the. So everybody always asks me why the Japanese buy these $300,000 houses in Collierville and Germantown and rent them for doll, 500amonth. Because they don't care about the cash flow.
[00:22:08 – 00:22:09] Jeff: It's not about that.
[00:22:09 – 00:22:56] Brett: They're building asset wealth to add to their millions of dollars of asset wealth they currently own, Right? And as long as what they owe the bank is being covered and the expenses by the tenant, they don't care. They just. They don't care. It's not important to them. Yeah, they're building asset wealth. And see, the Japanese are smart about it. Somehow, last 20 years, we have gotten so twisted up in how to invest in real estate. And I blame those dickwads in California, the seminar guys who preach all these stupid philosophies and get all these kids turned up about making millions of dollars a month in cash flow off of all these rental properties. And that's not what the goal is. This is not the goal. You don't do it in the stock market, right? You don't go to your stock account every month and take out your earnings. What do you do? You roll it back into the stock.
[00:22:56 – 00:23:11] Jeff: A couple of economists out there are anticipating that maybe late September, early October, August, they're going to do a rate cut. But I didn't hear quarter point, half a point. I didn't hear any of that.
[00:23:12 – 00:23:53] Brett: Well, the Wall Street Journal quoted that they expect a rate cut August or September, and then they expect the Fed to continuously make minor, little, small drops between now and end of 27. I will tell you this. If we get a rate drop, if you're in another state and you're listening to our podcast right now, I know you're in Arizona. I know you're from California. I know you live in Chicago. I know you live in Southern Florida. This is not any of those places, right? So when you come into the Memphis market, you have got to come into Memphis market and understand the market you're getting into. And quit trying to drive your formula based on your experience in California or Southern Florida, because those are two totally different markets.
[00:23:53 – 00:23:56] Jeff: Memphis is the most stable market anybody.
[00:23:56 – 00:23:59] Brett: Could ever invest in and probably the most economic, right?
[00:23:59 – 00:24:03] Jeff: I mean, literally because of the modest prices of the houses. Yes.
[00:24:03 – 00:24:36] Brett: I got a call from one of my. One of my Hispanic investors in California. She bought three homes for me a couple years ago. She called me on the way here. I hadn't talked to her in over a year. She says, hey, I want to come to Memphis August 6th. I'm like, okay. She goes, yeah, I want you to take me around and show me some properties. Oh, you're ready to buy? She goes, yeah. She goes, I just put my house on the market here in Los Angeles, and when it closes for $850,000, she's going to come into town and buy seven or eight houses for cash. That should tell you all you need to know about the Memphis market. Right, Compared to your California market or compared to your Southern Florida market or your Chicago market.
[00:24:36 – 00:25:08] Jeff: I've got a. I had a client several years ago, he was a big AutoZone VP executive. Sold a 3,000 square foot house in California for $975,000, relocated to Memphis, bought a house out in the suburbs, out In Eads, on five acres of land, 7,200 square feet. He paid $600,000. That house in California would have cost him $4 million. So he just stroked a check for it.
[00:25:09 – 00:25:10] Brett: I'm just drawing that.
[00:25:10 – 00:25:14] Jeff: He called his boss back, said, I don't even need a raise. I just got a raise when I bought the house.
[00:25:14 – 00:25:29] Brett: I'm drawing that distinction only because people need to understand that's why Memphis is such a great investment market, because you literally can take one asset in another state and sell it and come to Memphis and buy seven or eight assets. I want to get Nick's prediction for the next six months.
[00:25:29 – 00:25:44] Nick: I think that I thought we were already going to see some improvement by now, but I think that it's going to be a little bit longer. I think we're going to be. I think we're going to be stagnant where we are until probably second or third quarter next year.
[00:25:44 – 00:25:45] Brett: Next year. Okay.
[00:25:45 – 00:25:47] Jeff: You might all listen to two rookies over here.
[00:25:47 – 00:25:53] Brett: I'm listening to everybody. This, this is democracy. Everyone's got a right to their own opinion.
[00:25:53 – 00:25:55] Nick: I'm an E.H. taylor, Richard.
[00:25:55 – 00:26:02] Richard: I don't expect to see any movement. We could argue as well, how much movement do we need to see for.
[00:26:02 – 00:26:06] Brett: It to really be impactful in the investment market? Very little.
[00:26:06 – 00:26:06] Nick: Half a point.
[00:26:06 – 00:26:07] Brett: Very little.
[00:26:07 – 00:26:07] Jeff: Half a point?
[00:26:08 – 00:27:23] Brett: Yeah, half a point. As soon as half a point drop three quarters of a point, there's a lot of investors that will then come in and start buying. And that's all you need. Somebody's got to take that leap into Memphis again. And as soon as that happens, then people will start jumping in behind them. And I'm only saying that because if Glenn was here, he'd say the same thing. We've both seen it multiple times. We've been through a dead spot. Like, oh, wow, you know, we're scrambling. Christmas is coming, Phones aren't ringing. What the hell's going? And I mean, out of nowhere, like somebody had a light switch and it dealt with the rate. It dealt with either the rate or it dealt with inventory. But there was always a shift. And as soon as it shifted, it's like everybody just woke up from a coma. Said, oh, I want to buy a rental property in Memphis. And it just flooded us like we. I was saying 21 and 22 were probably the biggest years I had ever had in real estate. I know it was Glenn's. Glenn sold like almost $20 million in real estate that year. And we didn't do anything different. Except one day the phone started ringing and it all came down to a shift in the mentality of the buyer. Whether that was interest rates, whether it was, you know, Wall Street Journal puts out, there's an abundance of inventory in Memphis or prices are cheap in Memphis or you can get 1% in Memphis. Whatever it was, it triggered investors and they started coming in in Dr.
[00:27:24 – 00:27:26] Nick: If you know anybody at the Wall Street Journal, I'll put in a phone call.
[00:27:26 – 00:28:19] Brett: I was going to say, if you're listening to our podcast, go back and listen to all of our podcasts. And if you want to be an investor, I would encourage you to call every agent in town that you can think of. Look them up. But your last call, make it to us. Our team is designed for out of town investors. We handle everything from A to Z. We're damn good at what we do, and we've got every tool available. I mean, matter of fact, Nick Gibson's one of our rehab contractors. He's also one of our agents with us on our team. He's one of our partners. So we've got all the tools you need. So just give us a call at 901-692-7401 or go to mymemphasinvestmentproperties.com and if you like the podcast, subscribe. We'd love to have you as a subscriber. And you can go on our website, send us messages if there's a topic you want us to talk about. We'll be glad to do so if you send us a message, tell us to please fire Richard, the British prick producer. We can't do that, unfortunately, because he's a minority. All right, we appreciate you all listening. Thanks a lot. We'll see you next time.