Housing Expert: Everything You’ve Been Told About Real Estate Is WRONG! | Ken McElroy

Public: Fund your account in less than 5 MINUTES at https://public.com/ICED Bevel: Try one month for FREE at https://www.bevel.health and use code ICED! Wayfair: Shop, save, and score today at https://Wayfair.com Shopify: Sign up for a $1 per month trial period at https://shopify.com/ich Follow Ken McElroy Here: @KenMcElroy Add us on Instagram: https://www.instagram.com/jlsselby https://www.instagram.com/gpstephan Apply for The Index Membership: https://entertheindex.com/ Official Clips Channel: https://www.youtube.com/channel/UCeBQ24VfikOriqSdKtomh0w For sponsorships or business inquiries reach out to: [email protected] For Podcast Inquiries, please DM @icedcoffeehour on Instagram! Timestamps: 00:00:00 - Intro 00:01:15 - Does debt scare you 00:01:59 - Ken’s net worth 00:06:19 - Money misconceptions 00:07:39 - New assets this year 00:12:51 - Commercial real estate market 00:13:21 - Maximizing rent prices 00:16:03 - Ken’s first property 00:17:11 - Sponsor - Public 00:18:18 - Why Ken succeeded 00:22:15 - Getting into property management 00:24:41 - How did you meet Kiyosaki 00:26:47 - Are home prices sustainable 00:29:21 - Buying vs renting 00:36:46 - Sponsor - Bevel Health 00:37:59 - Will there be a market correction for single family homes? 00:40:59 - How government policy affects housing prices 00:43:02 - Ethics of having a real estate empire 00:54:21 - How to get into real estate with no money 00:58:36 - Jack’s HOA nightmare 01:07:26 - Sponsor - Wayfair 01:08:58 - Sponsor - Shopify 01:10:36 - Do 50-year mortgages help people 01:15:57 - Future of the U. S. dollar 01:17:02 - Thoughts on bitcoin 01:17:33 - Money advice to younger self 01:20:06 - Best investment ever 01:24:55 - Living healthy into your 90s 01:28:50 - Worst investment ever 01:30:19 - Properties he sold 01:36:35 - Ideal amount of money 01:41:03 - Net worth needed for a $10M house 01:43:34 - Does money buy happiness 01:45:51 - Dark side of success 01:50:02 - How much he works 01:53:04 - Net worth for private jet 01:54:02 - Best ways to spend money 01:55:41 - Ken’s philosophy on raising kids Public Disclosure: All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Crypto trading provided by Zero Hash LLC. Crypto is highly speculative and involves significant risk, including loss of principal. Cryptocurrencies are not protected by FDIC or SIPC. See disclosures for more details: https://docs.zerohash.com/page/us-licenses-and-disclosures. Alpha is an experimental AI tool powered by GPT-4. Its output may be inaccurate and is not investment advice. Public makes no guarantees about its accuracy or reliability—verify independently before use. See terms of IRA Match Program here: public.com/disclosures/ira-match. Matched funds must remain in the account for at least 5 years to avoid an early removal fee. Match rate and other terms of the Match Program are subject to change at any time. *Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

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• 0:26Speaker 01

  If people just looked at the way money works, it's quite simple. I've owned tens of thousands of apartments, managed billions in real estate, and had every luxury that I could even ask or hope for.

• 0:38Graham Stephan?

  And what do you think is the biggest misconception about money that tends to hold people back?

• 0:42Speaker 01

  That you need it. You just have to find an asset that actually has a tremendous amount of value add to it. And then you need to go find the money, either debt or equity.

• 0:53Graham Stephan?

  And how much debt do you have?

• 0:55Speaker 01

  About $1 billion.

• 0:56Graham Stephan?

  And does it scare you?

• 0:58Speaker 01

  No, I love it. Here's why the rich own nothing, and you should too. I'm a cash flow guy. Like, I'm very different than you guys. Like, I get where you're coming from, but we get millions a month coming in in cash flow.

• 1:09Graham Stephan?

  And why did you succeed when so many other people fail?

• 1:12Speaker 01

  Money goes where it's treated best. You know, what is risk really? To me, it's predictability. Everyone can and should buy real estate because you can find money anywhere.

• 1:22Graham Stephan?

  What do you see to the people who say it's unethical to own so much in real estate?

• 1:34Graham Stephan?

  Ken McElroy, thank you so much for coming on the Iced Coffee Hour. You own about 8,000 units of real estate with $1 billion in debt. Does the $1 billion in debt scare you?

• 1:46Speaker 01

  No, I've been more in debt than that. The... I get scared when it's not covered by somebody paying it. So, you know, I have 10,000 tenants, so they basically pay it off.

• 1:58Graham Stephan?

  Doesn't $1 billion scare you at all? Like that's, that's a lot to be owing to the banks.

• 2:06Speaker 01

  Well, it's, it's kind of like the frog in the pot, you know, you buy one and then you buy two and then you buy three. And next thing you know, you got 8,000 units and you've accumulated debt. And one day I added it up and it was a lot, but you know, uh, it's one at a time. So each one, there are individual projects that scare me, but certainly not the number.

• 2:25Graham Stephan?

  And how much do you have in assets?

• 2:27Speaker 01

  Um, probably one and a half to two. Right now we're probably valued at a 1.5 billion, I would say.

• 2:34Graham Stephan?

  How do you, how do you have one and a half to two? That's a pretty large swing.

• 2:37Speaker 01

  Based on a, yeah, yeah. So you know how cap rates work?

• 2:40Graham Stephan?

  Yeah.

• 2:41Speaker 01

  Okay. So cap rates went up.

• 2:43Graham Stephan?

  And values went down.

• 2:44Speaker 01

  That's it.

• 2:45Graham Stephan?

  And when cap rates went up, how much money did you effectively on paper lose?

• 2:50Speaker 01

  When cap rates went up easily quarter, quarter, uh, quarter million, probably 250 million, 300 million, 400 million, easy. So when cap rates go from four to five, that's a 20%.

• 3:02Graham Stephan?

  And so how did it, how, how does it feel to lose hundreds of millions?

• 3:06Speaker 01

  It's a great question. I think a lot of people hang their hat on how much equity they have in a home or something that they own. I don't do that. It's important. I want to have equity, but I'm more concerned on cash flow. So it's just like, like the single family housing market right now, it's not great in a lot of areas. It's great in some areas, but it's not great in other areas. So when the equity goes down, you know, it was, it was fake equity in the first place.

• 3:32Graham Stephan?

  Then why not sell if it's fake equity in the first place? And you see the values maybe starting to fall, that would be a good time to exit.

• 3:38Speaker 01

  It's a, I'm a cash flow guy, like I'm very different than you guys. Like I get where you're coming from. I get it, but I like the cash flow. I like the reoccurring revenue and you know, we get millions a month coming in in cash flow. And so if I sell, yes, I get the money, but then what do I do? I stick it in an index fund, um, you know? I mean, I would rather have it in, in hard assets that somebody else is paying off for me. And plus I get the tax benefits, plus it's levered, which I like. I like low leverage, but I do like leverage.

• 4:10Graham Stephan?

  Now Warren Buffett has a great quote when it comes to leverage. Can we pull that up? I'd love to get your thoughts on this.

• 4:16Speaker 03

  To make money they didn't have and didn't need, they risked what they did have and did need. And that's foolish. That is just plain foolish. I don't make any reference to what your IQ is. If you, if you risk something that is important to you. For something that is unimportant to you, it just does not make any sense. I don't care whether the odds are a hundred to one that you succeed or a thousand to one to succeed. If you hand me a with a thousand chambers, a million chambers in it, and there's a bullet in one chamber and you said, "Put it up your temple," how much do you want to be paid to pull it once? I'm not gonna pull it.

• 4:49Graham Stephan?

  What do you think?

• 4:50Speaker 01

  Well, I, it's no surprise. He's not a real estate guy at all. I mean, if you pull up Zamzal or some of the other people that I follow, they would say something very different. I think the difference here is you guys are paper and I'm not. I don't, I don't love the paper asset world. You know, I don't like the volatility of it. I don't feel like I can control it. I can control what debt I have. I can control the interest rate. I can control the monthly payment on whatever I borrow. I don't over leverage and, and I can largely control my apartments. I can control the occupancy. I can control the rents to a certain extent, even though they're also market driven.

• 5:34Speaker 01

  I can control a lot of the expenses. So, you know, we're, we're really talking about here is control and, and the paper asset market, I don't understand it to the point where I can control. I, it doesn't have the predictability as real estate.

• 5:49Graham Stephan?

  But still, for just a peace of mind perspective, from just like a philosophical perspective, if you exited all of your real estate, not even exited, you just paid off of your, paid off your debt, consolidated. So you had $500 million in real estate or whatever it may be, $600 million. Your life doesn't change between $600 million debt free and one and a half billion dollars in real estate with 900 million in debt.

• 6:11Speaker 01

  Correct. Right. That's why it doesn't bother me.

• 6:13Graham Stephan?

  But having more wouldn't necessarily change your perspective either, right?

• 6:17Speaker 01

  Having more

• 6:19Graham Stephan?

  cash flow, assets, debt.

• 6:22Speaker 01

  Oh, oh, so, so like, when am I, when am I done? And how much is enough? Is that what you mean?

• 6:26Graham Stephan?

  To a certain degree.

• 6:27Speaker 01

  Oh, sure. Well, right now I'm, I'm, I'm rolling out really a legacy play with my kids. So my kids are involved now and they're gonna, you know, succeed and they will, it's more of a succession. So really what I'm doing is I'm handing over the reins. But you're, you're right. I don't personally need more.

• 6:45Graham Stephan?

  And what do you think is the biggest misconception about money that tends to hold people back?

• 6:50Speaker 01

  That you need it. Actually, I think that's the issue. I think people believe that they need it to invest. Now, in your world, they do, but in my world, you don't. You just have to find an asset that actually has a tremendous amount of value add to it. Something that's broken that you can fix. And then you need to go find the money, either debt or equity.

• 7:13Graham Stephan?

  So how can people practice that in their own life if they don't have the kind of money that you have?

• 7:19Speaker 01

  Sure, well, it's no different than what you did here, Jack. You bought this place where we're in right now. It used to be a church. You rented the front, you got the back for free. That's a value add. It's exactly what I do, except on a bigger scale.

• 7:34Graham Stephan?

  But Jack had a decent chunk of cash ready to deploy. It took everything. It took everything. I maybe borrowed a little bit of money from a very good friend to the left of me. Interest free loan. He's not paying anything for this.

• 7:47Speaker 01

  So now you're just talking about syndication. So this is exactly the point. Like, this is a great deal. This space you guys have is amazing. And that's all I do. I look for things like that. And I'm very selective, very selective. I mean, in the last four years, we actually haven't bought very much.

• 8:05Graham Stephan?

  So how much then did you buy this year?

• 8:07Speaker 01

  This year, we're, we'll, we'll do about somewhere between 600 and 700 million, depending on what we can close by the end of the year.

• 8:15Graham Stephan?

  So, but how did you say we haven't done that much in the past few years? If this year alone, you've bought 600 million.

• 8:19Speaker 01

  Well, this year, yeah. But if you go back three years prior to that, we only did a few deals.

• 8:23Graham Stephan?

  And where's the opportunity this year? Why this year are you expanding your portfolio by that much?

• 8:28Speaker 01

  It's a great question. So what's going on in my world is when interest rates got spiked after inflation, and I think it was June of 22, I believe, went up to nine, and the Fed raised their rates really, really high. They got really, really aggressive. And so if you were going to build something, buy something, refinance something, you weren't, you couldn't because rates were up so high. So that changed the landscape. And what it did is it stopped people from actually pulling out construction loans to be able to build aggressively because construction loans are eight, nine percent. And of course, they all have to make sense. If you're going to build

• 9:11Speaker 01

  something, the loan is a big, big piece, not just the land and not what you're going to build, but the loan is a big piece. And so they pulled back. So if you take a look at what's happening in the market right now, things that are, that are being leased up today actually got started three, four years ago. That's how this, that's how the deals work. So you break ground, you don't even really open for a year and a half, and then you have another year to two years of leasing, depending on the size of the property. So we have a long runway. And so what, what's happened is there's over 500,000 units hit the market in, in 24 and 25, the largest ever in history in 50 years. So what you

• 9:53Speaker 01

  have is you have a big glut of units that got hit into various markets and it's all a result of low priced debt. Then the debt repriced. So, and the interesting thing about construction is that in construction loan, you don't actually have fixed rate, doesn't exist. It's a floater and it's personally guaranteed. So we have all these units that are being built right now, all over the US. And it's creating, it's actually creating really an advantage for the renters because you know, you can get month free, two months free all over the place. That is a result of the excess supply. Then what is going

• 10:35Speaker 01

  to happen is come, let's say 26, just you gotta look at the permits when you start building these things. It's pretty easy to track. It drops off like a hockey stick. So what you're going to have is you're going to have a, a housing shortage for apartments again in 27, 28, 29. And then what'll happen is You'll start to see rent growth again. And so this business is somewhat predictable. If you're paying attention, certainly nationally and a submarket driven. And that's, that's why particularly we're buying now. Because there's blood in the streets right now. Because people started building with three and 4% debt, 5% debt construction. And it got repriced while they were under construction.

• 11:20Speaker 01

  And so their mortgage payments went up a lot. And so they finished the projects and in some cases they didn't finish them at all. And they're everywhere. And so these new projects are all over the place. And they can't get out of them fast enough because of the high priced debt right now.

• 11:37Graham Stephan?

  Now, is that, is that only for multifamily? Or does that apply for single family?

• 11:41Speaker 01

  It's mostly multifamily, right? Which is the space I'm in.

• 11:44Graham Stephan?

  Got it.

• 11:44Jack Selby?

  I thought you saw that a little bit with single family homes and like the developments that occurred here in Vegas. Like they were trying to like sell off their, their land at a discount. And they were offering incentives because they were hurting. Or was that not really happening?

• 11:56Graham Stephan?

  Yes, those are home builders. So we're talking like Toll Brothers or Pulte. What they do is they buy a whole mountain here. And then they create these sub communities within the mountain. And they sell the lots and then they build the house. So they're making money on the land. They're making money building the house. They're making money on the house. But when they have so much construction going on, they just need volume. So they don't have this high overhead. So what they're doing is they're, they're buying down rates. Or what's very common right now is that they throw in free upgrades. So let's say the house itself is going to cost you a million dollars to build. But they say, hey, we'll buy down your rate to four and a half percent for 30 years. And we're going to throw in this really nice refrigerator. You get these really nice appliances, this really nice backsplash.

• 12:39Graham Stephan?

  We're going to throw some money towards these upgrades. That's how they get you in.

• 12:44Speaker 05

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• 13:09Graham Stephan?

  And without lowering the price, because if they lower the price, now all of a sudden that creates a comp for every other house. Yeah, that makes sense. So instead, they keep the price high and then they never want the price to dip below because once it does, it starts that cascading effect of like, I'm not going to pay more than my neighbor did.

• 13:23Speaker 01

  And the new thing is the rate by now.

• 13:25Graham Stephan?

  Yeah.

• 13:25Speaker 01

  Well, I guess it's not new, but, but I, I looked at the Lennar, the public reports and they, what they, they're doing is they're putting up on their marketing fees, right? But if you look at the net, uh, it's, there's a massive discount on what their profitability is based on, on all those things that you mentioned.

• 13:42Graham Stephan?

  Yeah, but multifamily is getting hit especially hard right now.

• 13:46Speaker 01

  For sure.

• 13:46Graham Stephan?

  Like you were saying.

• 13:47Speaker 01

  Yeah, yeah.

• 13:47Graham Stephan?

  What about office space?

• 13:48Speaker 01

  Yeah, well, I've looked, we, I've owned office, uh, I got, I sold my, when the, after the pandemic, I sold my last one, uh, but I think that one's going to be in flux, uh, would be my guess because of the, not only the work from home, but, uh, you know, there's, there's a lot of the class A space that was priced out really, really high that they're just not seeing a lot of the numbers.

• 14:13Graham Stephan?

  So on the topic of property management, what are the most important things to getting the highest rent possible and what are the worst ROI things to spend money on?

• 14:24Speaker 01

  Great question. I, I, first of all, I don't believe that we should always have the highest rent possible. So there's a time to do that and a time not to do that. So I actually believe that we should be under market in a good, good way. That could be 20, 30, 40, $50 under market. I'm fine with that because what's going to happen is my occupancy is going to be higher. If I'm trying to get that extra $40 or $50, I'm not, I'm not getting anything for it. Maybe higher vacancy because now I'm pushing into more comps. Um, there's other people trying to, trying to find that renter. So I'd rather, especially because I'm a long-term hold guy. And low debt, I would rather be highly occupied than have maximum rent.

• 15:06Speaker 01

  I always know it's there, but it could go away. You know, I mean, rents go like this. So I always know it's there, but, but I would rather, I just left a place before that on a condo project I did in Vegas. I have the same person in there for 15 years. And I had a conversation with the guy today and I said, what do you want to do? He goes, I think we should just keep the rents well below market and renew them for another year. I go, I completely agree. I, because he's, in 15 years, I've had zero vacancy. Now, when that guy moves out, that thing's gonna be a mess, right? I'm gonna have, I already was calculating, I'm gonna have probably 10, 15, $20,000 worth of work, for sure, but they've been there for 15 years. So that's a better philosophy.

• 15:49Speaker 01

  When the, Jack, when, when, when you're trying to maximize rents, that's actually when you're trying to get a refinance. So, for example, I'm refinancing a property right now that I've owned for 15 years in, in Flagstaff, Arizona. And, and so six months before, six months ago, we're like, let's refinance this project, you know? And we got so much equity in it, let, let's do that. And so we said to the manager, let's push the rents on the one bedroom. Let's push the rents on the two bedroom. Let's push the rents on the three bedroom at the expense of vacancy. I don't care if I'm at 90% or 88% or 89%, because the lender's gonna look at the rent roll.

• 16:34Speaker 01

  And if I'm renting units at that, then, then the whole rent roll is gonna be priced and I'm gonna get a better loan. Now, on a hold, I would rather be at 96, 97% cash flow all day long. And even though I might have some rent growth in, in the, in the rent roll, it's not worth it. I'd just rather provide a good value for the person in the market. What was the first property that you bought? That was a two-bedroom, two-bath condo.

• 17:01Graham Stephan?

  How much was it?

• 17:02Speaker 01

  Oh my God, it was $116,000 and I used my own cash. And this is, I was actually in the property management business, how I started. And this, this crazy Canadian came down, he was, he's buying this project and, and he's like, hey, we're gonna do a condo conversion in Scottsdale. And so I was helping him put the whole thing together and he brought the money and the debt and I didn't know, you know, I was young and, and he said, you should buy one of these. I'm, I'm like, well, I got like 20, 30 grand in the bank, man. There's no way, but I did. I ended up doing it and I barely cash flowed. I mean, probably I want to say early in 50, 50 bucks a month, then 75, then a hundred. And then after a couple of years I sold it, which again, I was chasing the equity, right? But then I

• 17:47Speaker 01

  paid tax on that. And then I was like, okay, now what? Where do I, where do I put this now? And so that kind of, well, it did. It gave me the courage to kind of move forward and, and start doing this on a bigger scale. I started buying more like that.

• 18:01Graham Stephan?

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• 18:46Graham Stephan?

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• 19:14Speaker 01

  The biggest reason, when I, when I look at that, I just look at the slash, the slash run with all these indicators.

• 19:20Graham Stephan?

  Oh yeah, it's been brutal for a lot of people, pausing distributions, capital calls. Oh my gosh.

• 19:28Speaker 01

  So, okay, so it's a great question at a perfect time. When, when somebody who raises money online, like, you know, I call them TikTokers or whatever you want to call them.

• 19:38Speaker 01

  And they hand it over to somebody, they oftentimes, they don't know, like, you know, what are they really investing in? What are the, what are the blind spots? What are the risks? And that happened, that was happening for syndications. And, and, and so what's happening now is, so I've, I've been doing this 25 years. I've been through some ups and downs. I went through 2008, you know, and the, the, the thing that solves every, every issue is fixed rate debt, lots of cash and, and transparency to the investors. That's it. So have I reported bad news? Of course, a lot over the years. You have to, you have to say, this is going on, we're gonna,

• 20:22Speaker 01

  you know, withhold distributions, or this is going, this is where we are. And, and so a lot of it is transparency. But a lot of it is also based on what they paid, what kind of debt they used. Because what I was seeing, and so when I said to you earlier that I wasn't buying during that period, it's because I was losing out to syndicators. So I'd be in deals. I'd be literally at best and final with deals, 20, 30, 40, 50 million dollar deals. And, you know, I have a, I have a 25 year track record. I have our own financials. Obviously, I know the operating expenses and we have analysts and we have investor relations people that help to figure

• 21:04Speaker 01

  out what, what these should be running at. And what was happening is that people were buying this at one, two, three, four, five million more than my top price. So I have a, I have a going in price, a medium price, and then, you know, I got a shutter down price, as most people do that have been in the game a while. And so I saw this coming when, when we were losing deals, because don't forget, I get the rent rolls, I get the financials, I'm looking at the exact same thing as somebody else. And, and so I was seeing these trades at these high numbers. Now, we couldn't have foreseen the interest rates going up for sure, but one thing that you could

• 21:45Speaker 01

  have foreseen is getting fixed rate debt versus floater. That was a choice.

• 21:50Jack Selby?

  So if you were to simply then explain what led you to succeed while many other people fail, how would you answer that?

• 21:57Speaker 01

  Property management.

• 21:59Jack Selby?

  So you manage properties more effectively than others do?

• 22:03Speaker 01

  Well, also, I see what I'm buying. So that's the, you know, operations is everything. So hopefully that's super simple. It's, it's all it is. It's, it's math. It's rents minus expenses.

• 22:17Jack Selby?

  So how are you getting the math right while other people that are professional real estate investors get it?

• 22:21Speaker 01

  Are they? But what's the difference? What's a professional real estate investor to you? Is it, is it somebody that has property management experience and understands operations? I don't think so. They're, they're money raisers. What is a professional investor?

• 22:33Jack Selby?

  So you're saying the syndicators fail because they're not necessarily professional real estate investors. A lot of the times they're just marketers, they're money raisers.

• 22:39Speaker 01

  Well, of course, for sure. Look, look out, look, look at their track record. I mean, some of these people have been in business a year, two years, three years. Of course. And they hire a property manager, if not try to do it themselves, but they don't know what to ask. It's just like you guys. I mean, you know, you've been doing YouTube forever, right? You know exactly the ins and outs based on your personal experience. Somebody new, that's how I looked at it.

• 23:04Jack Selby?

  Yeah.

• 23:05Speaker 01

  This is somebody new in the space. That's it.

• 23:08Jack Selby?

  How did you get into property management? Why that of all things?

• 23:11Speaker 01

  Yeah, it was not strategic. So I will tell you.

• 23:15Jack Selby?

  So it seems very stressful.

• 23:17Speaker 01

  No.

• 23:18Jack Selby?

  No?

• 23:18Speaker 01

  Well, let me, I'll just walk you through it. So I ended up.

• 23:24Speaker 01

  I, I ended up getting offered free rent in college.

• 23:29Speaker 01

  For exchange of collecting checks, doing the maintenance, cleaning units. And I, I did that on a 60 unit building up in Washington, which is where I'm from. So for me, it was a way to not pay rent. And, and my, I grew up in construction. My dad was in the, actually in, in the Navy, in the CBs. And so I always knew how to fix stuff. That was not a problem. So I went in there and I fixed everything I could. And I, it, it's, property management is not that difficult. It's, it's not. It's if you rent to really good people with really good credit. And you manage the expenses and you have to learn how to do all those things.

• 24:14Speaker 01

  You can be super successful with it because high turnover, bad tenants are what everyone talks about. So there's all these things that you can mitigate as a property manager. And so, so what I would go Jack to a property, we pass on so many properties. Why? Because like I went to one recently and it was, it was a good price in a horrible neighborhood. And based on all my experience of having to manage and stuff like that and knowing I'm not going to get good tenants. They're just not going to move here because of the school system and the crime and all that stuff. I pass because you can't manage your way out of a bad neighborhood. So there are things that you learn as you buy.

• 24:57Speaker 01

  And, and so one of those is what to buy, what price to pay. And, you know, is there, is there forced equity? I love forced equity in everything I buy. I don't buy and hope the market goes up. I buy with a whole plan. I buy with vacancy. I buy with 25 year old units that need 10 or $15,000 in them. And I can slowly over time, you know, improve the, improve the, uh, the rent, the rent base. It's very strategic. It's not short term. It's not three, four, five years at all. It's 10, you know, it's even more than that.

• 25:34Graham Stephan?

  How did you meet Robert Kiyosaki?

• 25:36Speaker 01

  I'm, I'm in a group called EO, YPO. And, and one of my friends said, listen, this guy just wrote this book called Rich Dad, Poor Dad. I had not read it. I was already doing my thing. And at the time, like I said, when I was syndicating, um, he said, you really, you didn't really need to meet him. He's exited some stuff. He's, he's doing okay. And, and so I went and met with Robert and Kim and I started showing them deals. And it, almost a year later, they invested in one of our deals. But what he did was he said, you should come to one of my events. And, and I went and I was, I said, wow, this is really something. He had four or 500 people there.

• 26:19Speaker 01

  He was teaching them and he, he, he, he, I, I went up and started talking about real estate and debt and all that kind of stuff and cash flow. And he ended up, um, we ended up becoming really close friends after that.

• 26:30Graham Stephan?

  And what's your relationship with Robert like today?

• 26:32Speaker 01

  It's great. And he's texted me three times this morning. So.

• 26:36Graham Stephan?

  What are his conversations like? Like, what is he texting you about?

• 26:39Speaker 01

  Well, it just depends, right?

• 26:41Jack Selby?

  Robert's a character. I was not expecting that. We, we had him here on the podcast and he was saying some, like, he's, he's funny.

• 26:48Speaker 01

  Well, I think you guys will, you know, as you get older, you just have that.

• 26:52Jack Selby?

  You just stopped caring.

• 26:53Speaker 01

  I don't give a, you know what?

• 26:54Jack Selby?

  That's what I say.

• 26:55Graham Stephan?

  Long time. I don't know if that's F you money, if that's like, what are you gonna say to me?

• 26:59Speaker 01

  It's a little bit of both, I think. Also, um, yes, I, you know, we have, we study together. We go to a ranch, uh, um, a couple of times a year, literally in West Texas and study together. Uh, we study books. Uh, we're on a, we're on a Zoom every week, uh, talking about, right? This next week is actually Thursday is gonna be, um, why did silver hit $50? Uh, you know, we always were picking something. So, uh, it just depends. Most of, obviously he's an investor with me, uh, and, and so I talk to him about those kinds of things. But mostly he's just a, he's just a good friend, but, um, he, he can be a loose cannon at times, that's for sure.

• 27:40Graham Stephan?

  Now, I think for the average person, they just wanna get started buying their first home.

• 27:44Speaker 01

  Yeah.

• 27:45Graham Stephan?

  Do you think that home prices today are sustainable at the levels that they are?

• 27:49Speaker 01

  Not at all. No, no, no. I, well, here's the interesting thing. It's, if you look at, let's say, Phoenix, Atlanta, you know, Nashville, some of the areas that were overbuilt, uh, Austin would be another one. What, what goes up must come down, right? And so not every market is like that. To me, grammar always has to be cash flow based 100%. So if it, I, I don't buy on a capital gain strategy. Don't like it. So I always want to have that, that cash flow. So where are prices? So I don't look at the home price like a stock. I don't look at it that way. Do I want home appreciation? Of course. Doesn't everyone the same, same way that they want stock appreciation?

• 28:33Speaker 01

  But what I look at is, is cash flow. So, so if I can buy a $500,000 house, which you can still buy in Scottsdale, um, and it, and, and the rent, it rents at three, $3,500 a month and, you know, I can figure out my expenses, then I tie it back to my return. Um, that's a, that's on an investment standpoint. One of the, one of the problems I think we have. Going back to the same example I used with multifamily is when rates went up, it also affected home builders. It slowed everything down. And, and so what the way to cure high prices is high prices. And, and the way to cure the rent price, bring that down, the way to cure home prices and bring

• 29:19Speaker 01

  that down is supply. That's it. So, so if there was a lot of supply hitting the market, like I went through in 2008, 2009, prices came down, you know, like a balloon, boom. And we haven't seen that yet, which is really, really interesting. In fact, I think we've had a little bit of rent growth, one or 2% or something this year. I want it to come down. The problem is, is that if it does, everybody's going to bitch, no, it's down, right? We cut, now I've lost my equity. But again, I look at cash flow. So, you know, sometimes I, many times I bought things where it cash flows and the price goes down. It happened to me in,

• 29:58Speaker 01

  in Austin, actually. I bought apartments in 05, 06, and they, the values went down. But what saved me were the tenants, the cash flow, and it got me through. And then eventually, Austin came rocketing back. And, and that's when we did a 1031 and moved the money.

• 30:14Graham Stephan?

  What about for the person who's not looking at cash flow? They just think, is it worth it for me to buy a house today at these prices, at these interest rates, or should I continue renting?

• 30:23Speaker 01

  It's a heck of a point. That's exactly why I'm bullish on renters, you know, you, I know, you've known, I've, I've talked about renter nation. I don't like this. It's not, I have two kids in their twenties and they're supposed to be able to rent, build credit, buy a home. But they can't. It's, it's unaffordable. And so the, the reality is, is it's, it's far better to rent today than, than to buy. Far better. From a, you know, from a cash flow standpoint, right? And that, that's not even covering the, the mortgages, one thing. But then there's the, I, Bankrate did a great study that said it's $1,500 a month just

• 31:04Speaker 01

  to cover all the other stuff, insurance and capex and all the other things. So the real cost is actually quite high. And so what we, what we need is, we need better priced homes, you know, and I, I think people are trying to solve that right now. But it, it's a, it's a problem. And, and so if you take a look at What's really interesting, one of the things that I follow is homeownership rate. So homeownership rate under Obama got to 69.1%, okay? And if you look at the presidents before that, it was Bush. He's like, American dream, even Clinton, American dream, American dream. And it pushed homeownership rate up.

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• 32:12Speaker 01

  Well, it's also what created the great financial crisis. Now, it's a whole story there. Of course, we don't need to go down that road. But essentially, it popped, right? And then it went all the way down to 63, 64%. Now, while that might not seem so meaningful, when you go that far down, you're talking about millions of people went from homeownership to rent. And that's actually what created the rent growth that we just had. You know, it's not because, you know, I magically started doing it. Like, what happened with these is all these people, home affordability got out of reach.

• 32:51Speaker 01

  And all of a sudden, it didn't become a choice as much as a necessity, unfortunately. And so we had all these people being forced over into the rental side. And just from 2020, it's over 4 million people. I'm with you. I believe that people should, I believe that rental should be a step toward homeownership. And I believe that people should be in hard assets and not be renters for life.

• 33:16Jack Selby?

  How concerning is it that the average home buyer right now is 40?

• 33:20Speaker 01

  Years old. That's horrible. Yeah, the median. I saw that. Yeah, the median. It's it's super concerning. And that's another reason.

• 33:29Speaker 01

  Why I think, you know, I I'm not, I didn't start this freight train. I'm just trying to be somewhere in in the middle of it. You know, the reason I'm buying rentals right now, the reason I'm bullish on multifamily and rentals right now is because I don't see an affordability solution yet. And so when I've when I've seen that in the past, it certainly happened with Clinton and Bush. They said, listen, everybody needs to own a home. And then they moved from apartments to homes, to single families. They bought single families. Now, that didn't end well for a lot of people, but the the reality is, is it's heading that way now.

• 34:08Graham Stephan?

  Now, what do you think of Ben Shapiro saying that, you know, homes aren't necessarily unaffordable? It's just you can't afford to live in Manhattan or Beverly Hills. And there are plenty of houses out there.

• 34:18Speaker 01

  Yeah.

• 34:18Graham Stephan?

  That you could buy right now for $200,000. It would be cheaper than renting, and it might not be the best area. But you could buy a home today in your price point if you were willing to move there.

• 34:28Jack Selby?

  In Las Vegas, you can find places for like in the 200,000 range. Obviously, it's not going to be in the nicest area. It's not going to be the nicest home or realistically condo. You can still find places for 300.

• 34:38Graham Stephan?

  Yeah, and they're nice houses. Everything in Vegas is like a 20 minute drive.

• 34:42Jack Selby?

  Yeah.

• 34:42Graham Stephan?

  And for 300 grand, you get a great house.

• 34:44Jack Selby?

  Cole, if you're listening to this, that's my brother. I'm trying to convince him to move to Las Vegas because he lives in Seattle. And Seattle is horribly expensive.

• 34:52Speaker 01

  My hometown.

• 34:53Jack Selby?

  Horribly expensive.

• 34:54Speaker 01

  It's my hometown. You're right.

• 34:54Jack Selby?

  And it's just out of reach to buy a place there. And I'm telling him he should move to Las Vegas because he works remotely. And he can buy a piece of real estate.

• 35:02Graham Stephan?

  I would say he should rent because the rents are so affordable in Vegas.

• 35:06Jack Selby?

  He is renting, but he's like, I want to have a garage. I want to have a backyard.

• 35:10Graham Stephan?

  You can do all of that.

• 35:10Jack Selby?

  Those are luxuries, Cole.

• 35:12Graham Stephan?

  So I was looking at a house that was down the street from me, like a half a mile away, and they're selling for like $500,000. But you could rent the the house for like 2100. I would rather rent the the house for 2100 than buy it.

• 35:24Speaker 01

  That math, that math works.

• 35:26Graham Stephan?

  So I think just, Cole, I would I would rent instead. I think a lot of.

• 35:30Jack Selby?

  People should be renting in this market.

• 35:32Speaker 01

  What do you think? What's he gonna do?

• 35:33Jack Selby?

  He, he wants to buy, but buying is gonna be difficult in, in Seattle. I hope he can buy because I know a lot of people, they have this like emotional attachment towards buying. And I would say the exact same thing. I have a friend that lives in Manhattan, Sean Rizwan, if you're watching this. And he wants to buy over there and it's not a good idea. And we were talking with Ryan Serhant about it because he's the New York real estate guy. And I was like, my friend in New York wants to buy a place, but it's too difficult.

• 35:59Speaker 01

  Yeah.

• 35:59Jack Selby?

  And there are co-ops there and then you have to circumvent the co-op and they have very strict rules and you're just, you're overpaying for a piece of real estate. You have no control over.

• 36:08Speaker 01

  The interesting thing is, is when I was your age, I would go to New York and it was the same, like Beverly Hills was the same. Like it was always like significantly above everywhere, right? Seattle wasn't, by the way, like.

• 36:20Jack Selby?

  It was less expensive.

• 36:21Speaker 01

  Yeah, yeah. That's where I grew up and.

• 36:23Jack Selby?

  I imagine Las Vegas was dirt cheap.

• 36:24Speaker 01

  Las Vegas was dirt cheap. I lived here 20 years ago. It was crazy. I come back. I'm like, I cannot believe the prices.

• 36:31Graham Stephan?

  I got a funny story on this. In 2010, I made an offer on a property in Las Vegas. Sight unseen, it was listed for $69,000 and I got the offer accepted. It was a short sale. So it had to go through the bank to get approved at that time and the bank could take, you know, a year, two years, whatever. So I get the offer accepted and then I drive to the area after it was accepted. And I think this is in the middle of nowhere in Las Vegas. Who would live out here? It was like 20 minutes from the strip. I didn't see it. It was dirt lots around. It's like, to me, it was so far out. It was on the edge of Las Vegas.

• 37:10Graham Stephan?

  And then by the time the short sale was approved, it was like two years later, I had already bought something else and I declined it. The bank, I think at the time, wanted like 75 grand. I thought it wasn't worth it. It was so far out, so I declined on it. I looked it up recently.

• 37:25Speaker 01

  No, you're not supposed to do that.

• 37:27Graham Stephan?

  Just for fun. I didn't realize that was Summerlin.

• 37:31Jack Selby?

  It was Summerlin.

• 37:32Graham Stephan?

  It was Summerlin.

• 37:32Jack Selby?

  How much was it?

• 37:34Speaker 01

  Seventy-five grand.

• 37:35Graham Stephan?

  Now, it's probably about four hundred and something thousand dollars. So not awful, but it was in the middle of Summerlin. And I remember seeing that fifteen, sixteen years ago. And just having it be in the middle of nowhere. There are places to buy real estate that right now are very, very, very cheap if you want to buy. But it seems like buying is a very emotional decision at this point and not so much a numbers-based one.

• 37:59Speaker 01

  Yeah, for sure. Yeah, yeah, in the path of growth would be one of those places, I would think. But yeah, you never know.

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• 39:19Jack Selby?

  So if you think that housing prices right now are not sustainable, what are you expecting then for the price of single-family homes? Do you think that there will be a correction, that they will go down?

• 39:29Speaker 01

  I don't. No, I don't, I don't, I... First of all, I think 60% of mortgages are under 40%, or 4%. They refinance, so you got a tremendous amount of people sitting on these low rates. And so what we're seeing right now is we're seeing broken Airbnbs or... You know, flippers or something like that that got caught. And that's kind of adding to a lot of inventory. But you know, if you go back and look at MLS, what's what's supposed to be average is four to six months on the MLS. That's supposed to be average. That's historical. We're not even there yet.

• 40:09Speaker 01

  So, you know, do we have a supply problem in some areas for sure, but not in all areas. And so, so I don't, I don't, I don't see home prices going down in the foreseeable future. And I think the, the only thing that's going to make them go down is more supply. Or there's going to be a massive shift somehow.

• 40:31Jack Selby?

  So what's driving up the cost of real estate? If it's just not a smart thing to be buying, what is keeping that outside of that smart to invest range?

• 40:41Speaker 01

  Well, and that's why we're buying below replacement costs, actually, is because that is the play right now, we believe is, is if we can buy things that are, you know, like you've all driven by things that look amazing when they're built and 10 years later it's vacant. Well, you're going to buy that for pennies on the dollar. So the question is, can you make a cash flow? So to answer your question,

• 41:05Speaker 01

  the, the components to, to build something are are not a secret. It's land plus the construction, plus the interest rate to build it. That's it. And then is there margin on there or not? There's only three things now inside of the, what does it cost to build it? There's lots of things you can do on the framing, on the, on the appliances, on the flooring, on the roofing, you know, on the drywall, concrete and all that stuff. All those components mean something. And they ran up during the pandemic, as you know, the supply shortage, you know, we're a builder too. So we have, we have hundreds of units under construction right now. We got caught with that, you know, costs went up a lot.

• 41:48Speaker 01

  Now we've seen a repricing and so why would we see a repricing? We've seen a repricing because just like anything. Well, my, my partner said, we're, we're getting electricians. They're calling us back, you know? Less construction means more contractors looking for less work. And so you, you, you have a little bit more negotiating room. So, so believe it or not, our prices are actually much, much better than they were just several years ago. The interest rate's still high though.

• 42:20Graham Stephan?

  Does government policy affect housing prices?

• 42:22Speaker 01

  A lot. Everything. It's everything. Regulations are everything.

• 42:28Speaker 01

  You know, rent control, big one. Rent caps, big one. Property tax, big one. All those things, you know, government has their hand, utilities.

• 42:39Graham Stephan?

  What is the worst thing a government could do for their local real estate market?

• 42:44Speaker 01

  Well, I think if, what's happened is when, when we saw Oregon pass rent control, for example, and I understand why. Listen, I mean, I'm a, I'm a massive proponent of affordable housing. It's just can't, we can't build it. It's just, it costs too much. So when Oregon passed that law, and California, of course, has a lot of those laws, and so does New York, and so does some of the other, you know. So I was talking to one of the bigger lenders in the country out of San Francisco, and I said, hey, like, where are you guys? Where's the money going? Right? Where's the big money going? He's like, not on the coasts. And what he basically said there was,

• 43:27Speaker 01

  you know, when you cap your ability to profit from the market rent, and then you are exposed to the property tax increases and the other things. So the government can essentially increase your expenses, and they can also cap your income. The money, as you guys know, you know, money goes where it's treated best. I mean, that's why you're talking to your brother about coming to Vegas versus Seattle. It's the exact same thing. People are smart. They make those kinds of decisions. And so, I've had people call me and say, you know, I can't sell my, I can't sell my property in Oregon, in Portland, Oregon, specifically because, you know, it falls under this rent control.

• 44:10Speaker 01

  And, and he said, I'm getting, I'm getting hammered on the expenses. And so his profit has gone significantly down. So he's worried. So when you talk about regulations, that's, that's the first thing that comes to mind.

• 44:22Graham Stephan?

  What do you see to the people who say it's unethical to own so much in real estate?

• 44:27Speaker 01

  Yeah. Well, they're, I mean, I understand. I mean, if they don't own anything, that, I mean, that's actually what's happening right now. Just take a look at, you know, what just went down in New York, right? Like, I mean, shouldn't rent be free? Shouldn't transportation be free? Shouldn't everything be free? I mean, right?

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• 45:16Speaker 01

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• 45:49Jack Selby?

  So what would you say to people that claim that it's unethical to own that much in real estate? Or say that corporations shouldn't be buying real estate?

• 45:57Speaker 01

  Who should own it, then? I guess would be my question back to you. Somebody has to own it. You want the government to own it?

• 46:02Jack Selby?

  Their logic is that corporations should not buy real estate. Investors should not buy real estate. That real estate is a human right to have housing, and therefore, the only people who should be buying real estate are owner, users, or people buying one property. One property, one person, let's just say.

• 46:18Speaker 01

  Well, I know there's a lot of people that believe that. If you take a look at, government has failed on housing. I mean, history just proves itself. We don't even go down that road. They're not good at it, right? So then where do you go? You go to the private sector. So if you want to throw regulations around that, then go ahead, but right now there aren't any. But corporations have gotten the game, for sure. I mean, they started buying up single families after the JFC. But, listen, I get the argument, but what they don't understand is who's going to build them?

• 46:58Speaker 01

  Seriously, like, answer that question. We're, we have, what, five, six million undersupplied right now? I mean, that's where we are. We have, depending on the study, I mean, if the low-income housing coalition is, is even higher, but National Multihousing Council, the National Apartment Association, Realtors Zillow, they all say it's four, five, six million. It's okay. So where's that gonna come from? Who's gonna do it? Somebody. So is he gonna do it by one-offs? Like, it's not gonna work. The math doesn't work. You, you know, if, maybe, maybe you get it to stability and then you implement a regulation, I guess, but, you know, we have a, we have a supply problem.

• 47:41Jack Selby?

  So to better understand this, your claim is that if they make it harder to, for people to buy multiple houses, for institutions to buy real estate, and there's, you know, people with less money bidding on houses, it will decrease the cost of housing, which will disincentivize builders from building more houses, which will disrupt the real estate market.

• 48:01Speaker 01

  Well, I don't know if it's a claim as much as it's a fact. Like, you, you take a look at, we're undersupplied. Let's just, let's cross that box out first. You guys believe we're undersupplied?

• 48:13Graham Stephan?

  You know, we've talked to several people in real estate who say there is not a housing shortage.

• 48:18Speaker 01

  Ah.

• 48:18Graham Stephan?

  It's just people can't afford to live where they wanna live. And if you look throughout the country and you go to other areas, there's plenty of housing for everybody.

• 48:26Speaker 01

  So the reason I think that's not right is because of the 40-year median that you brought up. Why is it, why is it?

• 48:32Graham Stephan?

  But that's, but that's more to do with prices, and it's more to do with people not making an income to support the house.

• 48:37Speaker 01

  Correct.

• 48:38Graham Stephan?

  But they could.

• 48:38Speaker 01

  That's my point.

• 48:39Graham Stephan?

  But those people could buy a house somewhere else in the country.

• 48:41Speaker 01

  But supply is everything. Like, like, if, if you guys, you wanna go to the Super Bowl, you're gonna pay a lot for the tickets because everybody wants them. Or you're gonna go to one that nobody shows up to. Well, the tickets are gonna be half off. It's a supply-demand problem.

• 48:58Graham Stephan?

  Yeah, but you can't add more supply necessarily to dense cities, like, let's just say coastal areas.

• 49:04Speaker 01

  That's true.

• 49:05Graham Stephan?

  Without tearing down what's already there and building up.

• 49:07Speaker 01

  That's 100% true.

• 49:08Graham Stephan?

  And then no one wants to do that.

• 49:09Speaker 01

  Which is why we have urban sprawl, right? It's been going on a long time, for sure. But this is a supply problem. It's, it's, it's, we have, if you go back and look at, one of the things that you guys, when, in 2008, I don't know, you guys were 18, I guess?

• 49:27Graham Stephan?

  I was eighteen.

• 49:28Speaker 01

  I was ten.

• 49:29Graham Stephan?

  How old?

• 49:30Speaker 01

  I was ten.

• 49:31Graham Stephan?

  Jack's like.

• 49:31Speaker 01

  All right.

• 49:32Graham Stephan?

  Say it again, Jack, how old are you?

• 49:33Speaker 01

  Ten years old?

• 49:34Graham Stephan?

  Ten years old?

• 49:35Speaker 01

  Well, so here's what happened, and I went through this. In two thousand and eight, it was bad, right? People were losing their homes and and it was that was not good. Right? And there was a big repricing. Here's what did not happen. Building. Two thousand and eight, two thousand and nine, two thousand and ten, two thousand and eleven, two thousand and twelve. So when there's big, when there's big corrections. And by the way, here's what did not stop. People kept being born, people, people kept graduating from college. You know, you know, the population growth, as you guys know, is is is growing by a million to two million a year. Okay.

• 50:20Speaker 01

  So the math, it's really simple. Like you have, when you have that many people during that period of time, we needed, we needed housing. So we never corrected from about two thousand and eight to about two thousand and eighteen. And then it started again, actually. We started getting going again, right? And and we, we, we started and then pop, we had the pandemic. And then now, you know, now we're in the situation we're in. But we never caught up. This is, this is a, you know, this is going back to nearly a twenty year, the start of nearly a twenty year problem. And if you look at the twenty years prior to that, we didn't have problems. And, you know, there, there's a, there's a flow.

• 51:03Speaker 01

  When, when people are born and people graduate and people go move into their parents or out of their parents or whatever, there's a flow. Household formation is another big piece, but there's a flow. And if you restrict the supply of the flow of the demand, which is the people, you're going to have high rent, high prices. And and then that's, that's just a fact, and that's where we are today. And, you know, the last time we saw low prices was after the GFC or during the GFC.

• 51:33Graham Stephan?

  Can you make an argument against why institutions should not own homes?

• 51:38Speaker 01

  Yeah, oh, yeah, yeah. First of all, I, last I looked, they're, they only own like six hundred thousand houses, which is still a lot. Don't get me wrong, I think that's too many, you know, and, and, but.

• 51:54Speaker 01

  You know, I don't believe, I think real estate should stay at Main Street and Wall Street should stay at Wall Street. That's what I believe. And it is a lucrative business, real estate. And I think what happened, well, I know what happened because I've been in this business for 30 some years. In 08, when there was all those single family homes on the balance sheets, and there was a lot, I want to say at one time, what was it, six, eight million homes on the MLS or something, the Wall Street got involved. They started buying them for pennies on the dollar. And they didn't know how to manage them. And I had friends getting into this business,

• 52:38Speaker 01

  trying to figure that out. They were, they were actually managing for some of these big, big institutions. And then they started exiting. And then, of course, you saw Zillow kind of got into that game, and Open Door, and some of these others got into the game. And this, who knows if they're price fixing or not, who knows? But at the end of the day, is that a corporation? You know? And so, I think, you know, I don't think it should be there, personally. You know, I don't think so.

• 53:06Graham Stephan?

  I did this whole analysis on Wall Street buying real estate. And when I came down to it, just unbiased, it's really unpopular to say this, but they had very little to no impact on housing prices at all.

• 53:18Speaker 01

  I agree.

• 53:18Graham Stephan?

  And it's really hard for people to accept that Wall Street isn't to blame, because it's so easy to point and be like, oh, this faceless corporation's buying single family homes. No, they're not. They're not buying it. They don't care about Suzie down the street, listing her single family home and bidding against you. It's 75% other owner users.

• 53:37Speaker 01

  Right.

• 53:37Graham Stephan?

  That's it. And then another 10% mom and pop investors. And then everyone else is like a mix between someone buying like a vacation home, or, you know, a second property for themselves. The corporations really only buy about 1% of properties. And most of what they do buy are development communities that were never meant to be for sale to begin with. It's not profitable for them to like, buy Suzie's home over there, buy Joe's home over here. And like manage them separately and imagine like BlackRock going and trying to like fix up someone's faucet. It's like they're not gonna waste their time on this.

• 54:12Jack Selby?

  They're not gonna waste their time on it.

• 54:12Graham Stephan?

  And so people wanna say like, oh yeah, LLC shouldn't own a home. Well, everyone owns their house in an LLC for liability purposes. And then the corporation comes in, they buy a whole complex to rent it out that never would have existed if not for them. So I actually think, I'm gonna say it, I think they're actually doing a service to the housing market by providing a lot of homes that never would have existed otherwise.

• 54:33Jack Selby?

  So you're saying they're guaranteeing some sort of income for developers and then the developers will, based off of that note or whatever it is, build a community?

• 54:42Graham Stephan?

  Correct. So you have, you have like invitation homes, will, will, will buy all this land and they'll make like 200 single family homes. They're not interested in going and developing all of that to sell them individually. But instead they do it with the contingency that like, you know, another large conglomerate is gonna buy this whole community and rent it out because they could operate at scale. That never would have existed had it not been for the development and the corporation going in. And that corporation's not doing it with their own money. They're taking investor money. And so like you could go in or grandma could go in, invest some of her pension in this fund that rents out the houses. It's not like some evil dude pulling the strings. It's really unpopular. People, people hate the idea.

• 55:28Graham Stephan?

  But instead, the biggest competition is your neighbor, is your friend, is your cousin going and getting a 7% mortgage and buying the house and overpaying for it because they fell in love with the house. That's the reality of it.

• 55:40Jack Selby?

  Yep. It's worth mentioning.

• 55:42Graham Stephan?

  So in terms of ethics, I, it really doesn't, it doesn't matter. If anything, okay, I'm gonna be, uh, uh, one, one last thought here. I do think it makes sense. If someone buys a second, third, or fourth home, that property taxes should not be as subsidized as they are in a primary residence. So maybe if you buy a primary, you get a property tax decrease, but the person buying their third home as an investment, they get a slight increase every year, something like that. So it's a small little tax.

• 56:17Jack Selby?

  But with that being said, you should also be able to carry your note if you were to buy a new property.

• 56:22Graham Stephan?

  That would be awesome. That's impossible to actually implement, but I'm in favor of that. But it wouldn't be possible.

• 56:29Speaker 01

  It just won't happen though.

• 56:30Jack Selby?

  So for the average person out there to get into real estate, it's incredibly unaffordable. How does someone who doesn't make that much money get into real estate? Buy their first property?

• 56:40Speaker 01

  Sure. Well, to live in would be very difficult. To invest in, not so difficult. So again, I always go back to the basics. I have friends right now that are crushing it in Ohio, as an example. And they're raising money, somebody else's money, and they're using that as the down payment. And they're signing on a debt and it cash flows. And then they split the cash flow with the investor. So that's how you buy real estate with no money. It's not about money. And I think that if there's, you know, if there's one thing that people like to hang on, it's that I need money before I can do something.

• 57:25Speaker 01

  It's just not true. You actually have to find something that you can create massive value with, or cash flows. And then find an investor that will ride along with you, you know, just like you did here. It's the same.

• 57:41Graham Stephan?

  Is there any area you won't invest in?

• 57:44Speaker 01

  Oh, yeah.

• 57:45Graham Stephan?

  Which ones?

• 57:45Speaker 01

  Areas that are highly regulated, for sure. We've never invested in California.

• 57:50Graham Stephan?

  Why not?

• 57:51Speaker 01

  Because of those reasons, mostly around the eviction laws. Now, I just believe that they're pretty heavily weighted toward the land or toward the renter. I know personally, people that... Owned small places, two, two units, four units, eight units, that they, they rented to the wrong person and they stayed in there for a long time and they couldn't get them out and they still owed the mortgage, they still owed the expenses and they lost the property, had to file bankruptcy. So, um, you know, those kinds of things are, are big. Property taxes are big. Insurance is one. So I, I almost bought in Florida, but the insurance rates are, uh, over double what they are

• 58:34Speaker 01

  in Arizona. Um, if you buy in the Gulf of Texas, like say Houston, Baytown area, they're double. Um, and Dallas is less than Houston as an example. So there are, there are things that you know and you find out over time, um, that, you know, you want to be careful of. Uh, but government regulation, anything that capture income and, and expenses that, uh, you know, could, could go out of control. The other one, of course, uh, on a, on a smaller level are these HOAs. You know, we're, you know, what, what's happening right now with the HOAs is that they're, um, you know, they're managed by people that are just regular people, right? They don't understand, you know,

• 59:15Speaker 01

  what like a 10-year capex study is and, and how much money should be put into the reserve account every month. And so what happens is you're starting to see these big assessments hit. Oh, yeah, I got hit with so many. So that's what it is, right? It's just my, it's just poor management. And, uh, you, you know, I've done a bunch of these types of buildings. And, and so, you know, that's another one. I, I know, um, you know, my wife had a, a listing, um, she sells real estate and the, the, the price was, was a one bedroom was like 300 grand for a nice building with an elevator and beautiful building, but little dated. The HOA was 800. The HOA.

• 59:57Speaker 01

  Not the payment, you know, not, not any, you know, so, so that's just the HOA. So the seller was having a tough time selling it and there was also a, uh, an assessment. So, so, so I think, I think HOAs and condo projects are going to be the next ones that you see poorly run, um, where you're going to start to see, because as these properties get older, they need roofs, they need paint, they need parking lot, they need all that kind of stuff. I just walked on, you know, this morning and I was looking at the, I was looking at the trees and I was like, you know, that's what I do when I walk properties. I look at the deferred maintenance and drives me nuts. And, you know, immediately I'm calculating all the costs,

• 1:00:39Speaker 01

  um, that somebody has neglected, whether it's the pool, the common areas or, or whatever. Um, and that rolls up for condo owner into their, into their pocket.

• 1:00:49Jack Selby?

  So I had an interesting HOA story. I didn't share this with you recently, but a couple of years ago, I got a letter on my front door that said, you need to trim your palm trees. And so what did I do? I called my landscaper. I said, hey, could you trim the palm trees? He said, yes. And then he came over, he trimmed them. I solved it in a few days. I emailed evidence to the local HOA and I said, hey, look, I trimmed the palm trees. Here's a picture. And then they said, oh, thank you so much. I'm forwarding this over. I'm just going to use the name Jim. I'm forwarding this over to Jim. Jim says, thanks so much. I appreciate the evidence. Everything should be good to go. And then I emailed back and I'm like, just confirming everything is good to go. Never heard back from Jim again. And then I assumed everything was okay.

• 1:01:34Jack Selby?

  Fast forward two years to a couple of weeks ago and I get a letter in the mail from the HOA and they said, just letting you know, you owe a bunch of money in fees because we increased the HOA dues. And I didn't know that. I had it on auto pay. I assumed it was like Spotify, like Netflix, when they increase the monthly subscription, it just automatically pulls the correct amount. They never notified me of a higher HOA. It was only in the documents that they provided for the new budget of the year, which I'm not going to read. It's like a 20-page document. That's where they informed me of the new dues. And so I had all of these back fees for not paying it. And then they had penalties. They charged interest. They did everything to make me owe hundreds of dollars

• 1:02:16Jack Selby?

  because they didn't notify me, except in this new budget document that they sent out like 10 months ago. I go into the HOA office because they don't answer their phone. I tried calling them for weeks. I show up to the HOA office, wait in the waiting room, go into the ladies' room, and she says, "Oh, on top of these fees, you also owe fees from two years ago for this palm tree incident." And I owed over 1,500 dollars. Yes. And this is because they started charging me $50 a week for not trimming my palm trees, even though I sent evidence. I said, "Here's my email chain. I had it solved. Here's all the evidence that you need." And then she said, "Who were you talking to? Jim?" And I said, "Yeah, I was talking to Jim." And then she said, "I don't know Jim."

• 1:03:00Jack Selby?

  And I was like, "Well, what do you mean? This is who I was forwarded to." And she said, "Oh, that Jim passed away." And he had actually passed away, and he never fully confirmed that I had submitted evidence of me trimming the palm trees.

• 1:03:15Graham Stephan?

  Wow.

• 1:03:15Jack Selby?

  And then I was like, "Well, I am so sorry to hear that. That's awful." Because I was all up in a rage. Like, I was ready to like, "Okay, well, then I did this, and I did this, and you told me to do this, and I did this." And then she told me he passed away, and I was like, "Oh, my gosh. I am so sorry to hear that." But also, what are we doing about these fees?

• 1:03:31Graham Stephan?

  Yeah.

• 1:03:32Jack Selby?

  And then she said, "It should probably be okay." I'm like, "What do you mean probably? Like, I did what you told me to do."

• 1:03:38Graham Stephan?

  Imagine she passes away the next day, too.

• 1:03:40Jack Selby?

  And then I just have to deal with this again in two years, and I have $10,000 owed. So I don't know. HOAs, like, this was a whole pain in the butt because of things that are so simple to solve. Notify me instead of just, they never notified me that I was not paying the full.

• 1:03:54Graham Stephan?

  They do it by mail.

• 1:03:55Jack Selby?

  No, they didn't. They never sent it. They never emailed me. They never sent me a notice that I was not paying the correct amount in fees. It was only in the budget and then finally I got this notice saying you owe hundreds of dollars in fees.

• 1:04:04Graham Stephan?

  By law, it has to be over mail. You probably got.

• 1:04:06Jack Selby?

  They never sent me in the mail. I went up to them and they said, oh yeah, we never sent it to you. So maybe there's something there. If you guys know a lawyer, I'm kidding. The HOA is fine. It's not that expensive. But it's this whole ordeal that you have to deal with, with HOAs, that you don't have to deal with if you don't have an HOA.

• 1:04:19Speaker 01

  I think that'd be great to do a parody like a movie, you know, like an HOA board. Wouldn't that be the best?

• 1:04:24Graham Stephan?

  Gosh.

• 1:04:25Jack Selby?

  It was actually comical. It was comical walking into the HOA office. I go into this lady's office and there are boxes of papers stacked, floor to ceiling in this tiny, tiny office, papers strewn across her entire desk. There's a check sitting right here. There's another check over here and it's just like, she's like, okay, let me find this. My desk is cleaner than that. It's still messy though, but it's, it's a complete mess. Like there's no organizational skills going on whatsoever. I was, I was honestly impressed. I thought it was a governmental agency based off of how, like the DMV is what it felt like.

• 1:04:56Graham Stephan?

  On my HOA, this was like two years ago, I saw the budget and I was blown away at how much they were spending on things that you could just get done for way cheaper. Like I'll give you an example. We have a whole exercise room. They are leasing the equipment. And for the cost of the lease, you could just buy the equipment outright within six months. So why lease the equipment? And they say, well, it's for maintenance issues. But you could own all of it in six months of the cost of the lease. That doesn't make sense. And then I saw they do decorations on the front gate leading up and they put Christmas lights on some of these things. That was $12,000. I was like, $12,000? It's, it's maybe $500 are the Christmas lights.

• 1:05:39Graham Stephan?

  And it's maybe two days worth of someone time. How is that $12,000 to Christmas lights? The other one is that they have a roaming patrol car that goes around the entire neighborhood 24/7. The lease cost of that, you could just buy the car outright within about a year. Why lease it? And again, they say, well, it's for maintenance. So. That you know, it's under warranty and it doesn't matter. You own it outright. You could just keep buying a new car every year for the same cost as leasing it. And you get to have an extra car left over. So it's all these little things that like, when you have a budget of all these, you know, hundreds of homes going together, you know, over, I think it's just people are getting crazy bids because it's an HOA and they're like, all right, well, let's just do it. We have the cash for that. Yeah.

• 1:06:24Graham Stephan?

  Let's just do it. All right. That's fine. No one's like sitting at nickel and diming.

• 1:06:26Graham Stephan?

  It's not their own money. It's someone else's money. It's inefficient to sit there and be like, all right, I'm going to get three bids and then I'm going to go and negotiate all of these line by line.

• 1:06:36Jack Selby?

  And it's easier to just charge 20 more dollars per house, 50 more dollars.

• 1:06:39Graham Stephan?

  Yeah.

• 1:06:40Speaker 01

  And they, they don't know how either, right? Cause most of them don't maybe even own real estate, except maybe the one that they're in.

• 1:06:45Graham Stephan?

  Our HOA is comprised of other homeowners.

• 1:06:48Speaker 01

  Oh.

• 1:06:48Graham Stephan?

  Uh, but there is an over like seeing management company on top of that.

• 1:06:53Jack Selby?

  Is it profitable HOA?

• 1:06:54Graham Stephan?

  Uh, no, I don't believe HOA's can be profitable. Like there's going to be money left over in reserves.

• 1:06:59Jack Selby?

  They can pay the HOA like board members, correct?

• 1:07:02Graham Stephan?

  No, uh-uh. No, they, they donate.

• 1:07:04Jack Selby?

  Oh, I did not know that.

• 1:07:06Speaker 01

  That's why you had such good service.

• 1:07:07Jack Selby?

  That's interesting.

• 1:07:09Graham Stephan?

  They donate their time to do this. It's like, you don't get paid to be on the HOA. You do it because you want to better the community.

• 1:07:16Jack Selby?

  There's no way that my HOA office does not profit.

• 1:07:20Graham Stephan?

  They maybe, they maybe can deduct, uh, maybe like a salary or they could deduct an office space.

• 1:07:26Speaker 01

  They just have to deposit some of those checks.

• 1:07:28Graham Stephan?

  Yeah, but no one's making money.

• 1:07:30Jack Selby?

  No one will notice. Yeah. Charge me a few extra fees and whatnot.

• 1:07:33Graham Stephan?

  Yeah. I don't think they're making money. Okay. I don't think it's something that's like a profitable endeavor to like run an HOA.

• 1:07:39Speaker 01

  Right. Normally they're nonprofit, but what they fail to do, um, is the, the, that's a firm maintenance piece, right? Like the, you know, the CapEx we call it, or capital improvements that, that, you know, what the normal HOA dues are supposed to cover are just your normal operating costs. Like the landscaping and the water and the sewer and the electric and that kind of stuff. But the buildings, the roofs, the parking lots, you know, all the, the stuff, maybe a big, big break in a, in a water line or something. That's typically not covered in that, in that monthly. That's called. Reserve and that's what most of them fail at. And then, of course, they're in a precarious situation too, because they're your next door neighbor. And they're like, hey, it's 100 more a month or 50 more a month. And then, you know, then, then you don't want to meet them out by the mailbox, right?

• 1:08:24Speaker 01

  So you have that too.

• 1:08:25Graham Stephan?

  I got a dude that surveillances houses and then you get an email that says, hey, we have a violation.

• 1:08:32Speaker 01

  Of course.

• 1:08:33Graham Stephan?

  He'll just walk around and kind of like look and, and see like if, if I have dead plants in front. It'll be like, just cite that. Oh, I've gotten cited for having a trash can by my, uh, a trash can left out. That was, that was a no, no, can't do that. You know, it makes the neighborhood look nice and uniform, but it's like, sometimes a little wiggle room here might be kind of nice.

• 1:08:57Speaker 01

  I know. We had one where all the cars had to be in the garage.

• 1:09:01Graham Stephan?

  Yes.

• 1:09:01Speaker 01

  Every night. Now, I like cars like you, so that became a problem. You know, I had a four car garage, but, uh, you know, sometimes they spilled out, right? And I was getting notices all the time. So that's another one. And especially if somebody comes and spends a night, you know, well, let's say a family member and they're there for a week or something. I would get notices.

• 1:09:22Jack Selby?

  What cars do you have?

• 1:09:24Speaker 01

  Uh, right now, I, well, I have a 57 Porsche Speedster. I have a 458 Ferrari. And I've got a Range Rover. So just the three now.

• 1:09:36Graham Stephan?

  The Speedster is awesome.

• 1:09:37Speaker 01

  Great car.

• 1:09:38Graham Stephan?

  That is super cool.

• 1:09:39Speaker 01

  Phenomenal. Yeah.

• 1:09:40Graham Stephan?

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• 1:12:55Speaker 01

  Well.

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• 1:13:23Speaker 01

  It's interesting. There are 50-year mortgages out there. There are New Zealand, Japan. There are places that have them. And there's pros and cons, of course.

• 1:13:34Speaker 01

  I'm a proponent of getting people, back on the affordability thing. What it does is it lowers the payment.

• 1:13:43Speaker 01

  And that is if you're using apples to apples, the same interest rates, let's say. So there's a big what if. But I'm a proponent of getting people into houses. And if it's based on the monthly and their monthly, then I'm a proponent. Now, I don't like the fact that it's been kicked down the road past 30. And I think the 30 was debated, I don't know, by Roosevelt back in the...

• 1:14:13Jack Selby?

  What was it before the 30?

• 1:14:15Speaker 01

  I don't even know.

• 1:14:16Graham Stephan?

  It's called basically cash and short-term, high-interest debt. So before the 1930s, it was customary for people to either save up and buy home in cash or what they would do is take out a short-term loan. That was, let's say, 6%.

• 1:14:31Jack Selby?

  Yeah, like a hard money loan or something.

• 1:14:32Graham Stephan?

  Yeah, basically, like 6% for... For five years and the expectation is that, you know, by the time the loan comes due, you would either have the money to pay off the loan or you would just get another loan.

• 1:14:41Jack Selby?

  Was the house collateral for the loan?

• 1:14:43Graham Stephan?

  Correct.

• 1:14:43Jack Selby?

  Yeah.

• 1:14:44Graham Stephan?

  But what happened is that in the 1920s, Great Depression, people were losing their homes because they couldn't afford to pay back these loans. The government got involved because so many people were becoming homeless and they started to develop the 30 year mortgage. That was initially for new constructions, that you'd be able to buy a new house, get a 30 year mortgage. That was a success and then they rolled it out to older homes as well.

• 1:15:06Speaker 01

  Yeah, but pushing a mortgage out just means in debt longer, right? So that's not good, but it also gets people in what I would consider to be a hard asset. I believe that we're going to see inflation, you know, in the next 10 years, right? I mean, even even the Fed, I think they're right around three. They're on their website, they say they're they're good with two. So even that is 20 to 30%, depending on how you pencil it. So I think if somebody can be in a hard asset, no matter what, I think that they're going to benefit from inflation.

• 1:15:42Graham Stephan?

  Yeah. The other thing I do want to mention that going back to the 1930s to 50s is that the average home size at the time was like 1300.

• 1:15:49Speaker 01

  Yeah, small.

• 1:15:50Graham Stephan?

  My grandparents, they bought their house in West Los Angeles. They paid $36,000 for their house in the 1950s, but it was 1100 square feet.

• 1:16:01Jack Selby?

  Oh, wow.

• 1:16:02Graham Stephan?

  And that was for a family of five, by the way.

• 1:16:07Jack Selby?

  That's.

• 1:16:07Graham Stephan?

  It was them with three children in a three bedroom, one bathroom house, 1100 square feet, five people. And now people want a 4,000 square foot house.

• 1:16:20Jack Selby?

  A starter home is like 2,800 square feet.

• 1:16:22Graham Stephan?

  That's probably even small for a start. A starter home now is probably minimum 3,000 square feet.

• 1:16:28Speaker 01

  My mom still has the house I grew up in.

• 1:16:30Graham Stephan?

  Really?

• 1:16:30Speaker 01

  Yeah, yeah, they bought it for $10,700 in the late 50s.

• 1:16:34Jack Selby?

  What's it worth now?

• 1:16:35Speaker 01

  Oh, it's worth over 700. You know, and my mom was a hairdresser, my dad was in construction and, and, you know, they paid it off like, you know, this before the, you know, Dixon ticked the dollar off the gold standard, right? But things change after that, but before then, paying off your house meant something, right? And I actually remember when they did it and she still owns it today.

• 1:17:01Graham Stephan?

  Now, did you not tell her to refinance at like

• 1:17:03Speaker 01

  Yeah, she could pull out the equity buy a wedge deal.

• 1:17:07Graham Stephan?

  Turn a profit, flip some properties.

• 1:17:09Speaker 01

  Here's, here's, here's, this is very, very interesting. When my, when my dad passed away, I had the uncomfortable task and my brother and sister too, to dig into their stuff, right? And we dug into their estate. And my dad had bought, and I remember him telling me this, he bought a $10,000 life insurance policy. Around, in the sixties. So he had a 10,700 house and a $10,000 life insurance policy. So, fast forward, seven or eight years ago. Pull it out, the policy, 10,000. That's what it was. It wasn't inflation adjusted. And so he had a $10,000 insurance policy.

• 1:17:54Speaker 01

  And so, so I was talking to my friend about this and he said, so basically the insurance policy was equal to the house. At the time, that's the way my dad thought. Right? But that's what inflation did to that policy. Obviously, I'm taking care of my mom, but she still owns the house. And then she fell during COVID. And so we were in this weird situation where we had to help her and fix, you know, she, she broke some bones and, and her hip. And, and so what we did was we put her into a place where she wanted to go, an assisted place. And we rented her house to cover the cost. And so she is very happy because her home is actually paying for her care. And so that, that's how that worked out, but.

• 1:18:37Graham Stephan?

  What do you think of the future is going to be with the dollar?

• 1:18:41Speaker 01

  Ah, that's a really, really, really good question. I've studied this a fair amount. I don't think in my lifetime that we will see a change.

• 1:18:54Speaker 01

  From the US dollar because of the trust in anything else. So it boils down to trust. So dollar is only as good as, or currency is only good as the trust in the currency. So if you look at BRICS, or you look at, let's say, some of the other things like Bitcoin, just in the last week, or actually 10 days, it's gone down over 10%. So, you know, it's not there yet. Could it be? Yes, of course. But in my lifetime, I just don't see it changing. There's, there's too much disruption to move to the peso, or the euro, or the renminbi, or, you know, whatever country you want to pick.

• 1:19:35Speaker 01

  Somebody has to be that central bank, or there has to be something that everybody agrees on. And the euro didn't, didn't work.

• 1:19:42Graham Stephan?

  Yeah, really. What do you think of Bitcoin?

• 1:19:44Speaker 01

  I don't mind it. I mean, we own some, my wife and I own some. You know, I'm not heavily into it, but I think it's a little volatile for me. I, I, it's not, I don't know why it goes up and down other than hype. And so I look at it more like a stock. And I know a lot of people probably aren't going to be happy with me saying that, but that's how I see it, even though I have some, you know, I'm not heavy into it. I, I, I'm diverse, though. I have lots of different things.

• 1:20:13Graham Stephan?

  What's a piece of money advice that you would give yourself 30 years ago to be able to grow faster?

• 1:20:19Speaker 01

  Compound interest. I think it is an incredible thing. And I think leverage, low leverage. And, and I know you guys aren't, don't love leverage, but, but.

• 1:20:29Graham Stephan?

  I'm indifferent to it.

• 1:20:30Speaker 01

  Yeah.

• 1:20:31Graham Stephan?

  I don't mind.

• 1:20:31Speaker 01

  Yeah. But I, I think, you know, if you really look at the, the way money works is, and this really hit me once. You know, everybody works their butts off and puts their money into a bank. Well, that money becomes a problem for the bank. They owe you interest, period. It's an expense to them. So the bank's sitting there with your cash, or an insurance policy, or a pension, or whatever, a retirement fund. Somebody owes you something if it's your money.

• 1:21:01Speaker 01

  So what do they have to do? They have to repackage it and put it out somehow into into some kind of loan or something, some kind of vehicle that makes money to pay you because they don't just pay you. The money doesn't come out of thin air. So, so when we're talking about other people's money, it's already there. You know, Wall Street, the whole reason for Wall Street is to, is to reach in the pocket of Main Street. And that's what they do. They do it through the banking. They do it through pensions. They do it through insurance. They do it through retirement plans. And, and it is a way to take people out of the education piece of finance, you know,

• 1:21:45Speaker 01

  which is why I love your show is, you know, you guys are trying to teach the stuff around that. And I think people need it. I really think people need it. That's the only reason I'm doing mine is, is for that reason. And, and so I would, I would say to them, just look how money works. It, it's your money. Like, you know, if, if you're putting money away somewhere, like I'm borrowing from life insurance companies. I'm borrowing from pensions. I bought it. I bought maybe three or $400 million of real estate in Texas using the RRSP or Retirement Savings Plan out of Canada. That money, that's how Wall Street works is, is, you know, it all gets funneled.

• 1:22:28Speaker 01

  If it's a local loan, where do the, where does the money come from? Comes from, you know, the, the, the strength of the depositors. So, you know, it's all based on Main Street anyway. So, so I, I always tell people, you know, take a look at how money works. It's, it's actually not, it's actually quite simple.

• 1:22:47Jack Selby?

  What's the best investment you've ever made?

• 1:22:48Speaker 01

  So the best investment by far has been into myself. Right? I, there's a lot of stuff I had to clean up from a kid, as I think a lot of people do. And, and I poured myself into personal development from the very first time I discovered it, which was in college. And I never stopped. And You know, through books and podcasts and speaking and going to seminars and conventions and things like that, which I still do. I was just at a white P O convention last week in L A, listening to Michael Milken and some of other really, really cool people. So that's something that I always try to do is try to stay ahead of what's really going on in right now with with the markets, with the interest rates, with the financial markets,

• 1:23:29Speaker 01

  with tech, with crypto, all those things. And so I always try to stay ahead of that. From a from a finance development, it definitely has to be 182 unit building that I bought, senior project that has hardly any turnover. I bought it for 9.7 million and it's worth maybe 40 today and we still own it.

• 1:23:48Graham Stephan?

  How did it go from 9.7 to 40 million dollars?

• 1:23:52Speaker 01

  Inflation, inflation and rent growth and, and, you know, again, like, again, let's go back 15 years ago. What was the price of a house? It's the same question, right? So exact same question. Why, why, why did a house go from 200 to 400? So same thing. It's just, you know, with apartments, it's just math. It's literally math.

• 1:24:13Graham Stephan?

  I like that a lot. Yeah, I was just thinking the 50 plus communities are so nice. The people that move into them usually have the money that they just don't want to be bothered, but they have the cash flow. That to me seems like a really good opportunity.

• 1:24:29Jack Selby?

  Like they never want to move.

• 1:24:30Graham Stephan?

  Right. And they just want stability and peace and quiet. They're gone half the time traveling. Can you discriminate though against age? Is that one of those things? So you so technically though, if I wanted to move in a 50 plus community, could I?

• 1:24:46Speaker 01

  So the the property that I'm talking about specifically is actually age restricted by the covenants of the area. So it's it's Sun City, which is an area of Phoenix that a lot of seniors live in already. So they already, it's already a community for seniors. And this apartment property is is inside of that. So, so we are governed by that. And so they have to be 55 or older. And there, but to your point, last year, we had 42 move outs. Like, that's not much. That's, that's two, three, four a month. That's nothing. Compared to another 182 unit project like in Vegas, we might see.

• 1:25:27Speaker 01

  You know, 150 move outs. So the difference between 42 move outs and 150 move outs is significant because you have turnover costs, you have marketing costs, you have cleaning, you have maintenance, you have vacancy, all of that. So, so finding communities that, um, you know, people want to live in and stay in long-term, those are the ones that obviously I want to have.

• 1:25:51Graham Stephan?

  So could you not just go and buy a 50 unit apartment building in like a decent area and just say, hey, it's 55 plus?

• 1:25:58Speaker 01

  You probably could. Yeah. We haven't, we haven't done that. But the, you know, we, we bought four now and it age restricted areas and the seniors typically, it's been my experience, they, they like to hang out in senior communities. That's been my experience so far. So you could try it, but this area has like nine golf courses, three community centers, a bunch of pools. It, it does have an HOA. You know, there are things that it has that, that they can enjoy inside the community itself, not just in the property. In the property, we have all that too. We have pool, fitness center, all that kind of stuff. But they, and then we also have a 20 person van with, with a driver that drives them around to grocery stores and, and, um, you know, the hair,

• 1:26:41Speaker 01

  getting their hair done or the doctor or whatever it might be. So those are things that they need.

• 1:26:46Graham Stephan?

  That sounds so nice.

• 1:26:48Jack Selby?

  Graham would want to live in an age restricted community.

• 1:26:51Speaker 01

  Well, you can buy one and then buy the one you want.

• 1:26:53Jack Selby?

  And then just make one carve out.

• 1:26:55Speaker 01

  By the time, by the time you move in, you'll, you'll have the pet house and, and you'll own it free and clear.

• 1:27:01Graham Stephan?

  It sounds nice. I was just thinking too, you could offer services of like cleaning, cooking services.

• 1:27:07Speaker 01

  We have all that. And, and actually beyond that, once, once, uh, depending on their health, you know, we've seen, uh, some people are extremely healthy at 75, 80, 90 years old, very, very mobile and some aren't, right? So you have to have, you know, those kinds of services available to them.

• 1:27:23Graham Stephan?

  What separates those people? Do you ever get down to the weeds and you see someone who's like 90?

• 1:27:26Speaker 01

  I've talked to so many of these people. By the way, they're just incredible. Like they're, they have such wisdom and, you know, they're present, you know, they're looking at you. It's the greatest thing ever.

• 1:27:35Graham Stephan?

  But like the people who are 90. Plus and really just like doing well, active, like what separates them?

• 1:27:40Speaker 01

  Yeah.

• 1:27:40Graham Stephan?

  Are they different?

• 1:27:41Speaker 01

  I think it's a combination of a few things. Uh, my mom, by the way, is 93. And, and I always ask her, you know, we go to this place and, and, and she's like, you know, everyone thinks they're so old in here, you know, you know, she thinks she's young. My mom thinks she's young. Um, and I think that's it. I think the mindset is that, you know, they, they walk, they eat well, um, you know, they, uh, they're, they're, they're healthy mentally and physically, you know, as much as they can be, right? What happens is they fall, um, you know, I've seen that happen a few times and, and then that could be a, a bit of a game changer.

• 1:28:19Graham Stephan?

  Yeah. When we were talking to Dave Asprey, he was saying that the biggest thing for longevity and living a long time, socializing and exercise. And then if you cut yourself off socially or you retire and you, you stop working,

• 1:28:32Speaker 01

  You're right.

• 1:28:32Graham Stephan?

  Your cognitive ability goes down and then you stop socializing. You start getting out there, you start exercising, you stop exercising as much. Then you're more prone to injury and then you're more likely to pass away from the injury.

• 1:28:45Speaker 01

  Yeah.

• 1:28:46Graham Stephan?

  And so it seems like

• 1:28:47Speaker 01

  Yep.

• 1:28:47Graham Stephan?

  The more social you are, the more engaged you are with work, the longer you could live.

• 1:28:52Speaker 01

  Yeah. My, I, I, I'll tell you a fun story. My, my uncle, Dwayne, he passed away recently. He was in his nineties and he called me and he's like, hey, you got any 1030 wads? And I'm like, what? What are you talking about? He goes, I just got out of a deal and he's in his nineties. And, um, he's like, uh, you, you have a deal? I need to roll this in. I'm trying to avoid tax. And I, I called his, uh, sons, you know, and I'm like, that's awesome. Like your dad's still going at it. He's like, oh yeah, he gets up every day. He still manages his stuff and, and you know, he's still active. And he was that way, uh, you know, right up, right up to the time he passed in his, in his nineties. And, and I, I think it just connected him to things and, and you know, to your point, community is everything.

• 1:29:36Graham Stephan?

  I had a buddy whose grandpa I really, really liked. He owned a very large block right off of Beverly Hills. All of the retail was his. He was in his mid nineties and he'd show up to the office every day to manage the buildings, even though there was really nothing to manage. But he would show up there, he would walk out and like find things to fix. And be like, all right, we're gonna repaint this, we're gonna repaint this. And he said his favorite thing to do was he had a vending machine.

• 1:30:06Speaker 01

  Yeah.

• 1:30:06Graham Stephan?

  And he would sit at the office, watching the vending machine as people would go by, and put a dollar in the vending machine. And this guy is probably worth like 200 million bucks.

• 1:30:15Speaker 01

  That's awesome.

• 1:30:16Graham Stephan?

  But the guy would put the dollar in the vending machine, he would see what the guy would get. And then he would come out to open up the vending machine, to take the dollar and put it in his pockets.

• 1:30:26Speaker 01

  That's awesome.

• 1:30:27Graham Stephan?

  And apparently this guy also would go to restaurants and steal the silverware. And he just wanted to feel like he got one of the restaurants.

• 1:30:35Jack Selby?

  That sounds like you, dude.

• 1:30:37Graham Stephan?

  I wouldn't steal the silver.

• 1:30:39Jack Selby?

  Graham would not steal the silverware, but he always wants there to be an imbalance of value.

• 1:30:43Speaker 01

  Yeah.

• 1:30:43Jack Selby?

  Graham wants to be like, I feel like I got ahead, you know, I got away ahead from whatever transaction.

• 1:30:48Graham Stephan?

  The most I've done, and I haven't done this in a while, but if I lose money at a casino and they've been serving me drinks, I'll just take the cup.

• 1:30:55Speaker 01

  Nice. Yeah, just because.

• 1:30:57Jack Selby?

  So what do you do with the cup?

• 1:30:59Graham Stephan?

  I keep it and I drink from it. I still have like my little coffee cup that I got, the little nice glass one that I fill up sometimes, that's from.

• 1:31:06Jack Selby?

  Really?

• 1:31:07Graham Stephan?

  I think that was from Red Rock Casino.

• 1:31:09Jack Selby?

  Are you incriminating yourself?

• 1:31:11Graham Stephan?

  I think I lost so much money, it's what?

• 1:31:14Jack Selby?

  You've never lost a bunch of money, you maybe have lost 150, 200 bucks.

• 1:31:17Graham Stephan?

  It evens out in the long run. So sometimes I lose 300, sometimes I'll make 300.

• 1:31:21Jack Selby?

  Whatever, you're shouting them out right now, so hopefully they got a couple dollars worth of value.

• 1:31:25Graham Stephan?

  I got your cup. It might have been Aria, by the way, I don't know, it's one of the casinos.

• 1:31:29Jack Selby?

  You probably don't want him as a tenant, but what would be the worst investment you've ever made?

• 1:31:35Speaker 01

  Um, a gold mine, actually in Nevada of all things, yeah. I, I, I think as I was trying to diversify, this is going back a while, I was probably your age actually, I. I was trying to figure out, oh, I had money in the stock market. I had some money in real estate and, and you know, I'm, I'm trying to figure things out and I invested into a gold mine that would just went poof. And it, you know, they, it just all went away. How? Like an hour or about a year later, it was gone. An hour later? It was an hour later. No, it was about a year later. It was gone. They, they just stopped communicating and the money was out and no email. Yeah, basically. Could have been. Obviously, what I should have done is I should have physically gone there, physically done the due diligence. It was,

• 1:32:20Speaker 01

  you know, through a buddy, right? You invest in this gold mine and it wasn't a ton of money because back then I didn't have a ton of money, but I, it was a great lesson and it actually, um, you know, it can happen and I, I've seen it in oil and gas. I've seen it in other things. You know, that's, that's precisely why I, I liked hard assets. I liked it. Something physically I can touch. Even my gold and silver today. It's physical. I have actual gold coins with Brink's. I keep it in, in, at the Brink's. And, and I've been buying, you know, since it was under a thousand and now it's over four, but that's luck. It's not, I don't buy it for an investment. I buy it as a hedge against the US dollar, right? Yeah. That's why I buy it. How much real estate have you sold from your portfolio?

• 1:33:04Speaker 01

  I, I want to say it's probably close to a billion. A billion dollars worth of real estate? That we've sold. And would you have been better off just holding on to this scam? For sure. Yeah, for sure. That's so interesting. Sometimes I look at those. I'm like, oh, it's like, it's like that place that, yes, I, I, I did. I actually looked at a building today in Vegas and I was just, oh. And, and I, I had another one in Portland that I, that I sold and, and you know, what happens is like a lot of us is you see the equity. You want the equity, right? You think you need the money and sometimes you do need the money. But, um, I, I look back at some of those deals and I, I just shake my head.

• 1:33:41Graham Stephan?

  But do you think it's going to be the case in the future? Because you could make the argument that that is true because interest rates since the seventies have constantly just gone down. At the same time is underbuilding over decades and that's what's really led to this discrepancy.

• 1:33:55Speaker 01

  Yeah, that's fair. I, I, I think, you know, if I, if I just bought something, let's say here today, and came back in 10 years, I think it would be worth more because of inflation. And, and, uh, you know, and obviously that's not what I would do, but I think inflation. Is, you know, it's what made my mom go from $10,700 to over $700,000. You know, she's not a real estate investor, my mother. You know, she held real estate for a long period of time, paid it off, lived in it, raised a family and it still owns it. You know, there's nothing wrong with that. My sister is a bookkeeper. And at the Everett Clinic, which is where I grew up, she did the same thing.

• 1:34:39Speaker 01

  You know, she bought five rentals over a long period of time. And, you know, now they're worth, I don't know, a few hundred, few million, I think, you know, a few hundred, two, three, four, five, 600 each probably. And, you know, it's far better than she would have done, you know, just trying to live off a bookkeeper salary. So.

• 1:34:58Graham Stephan?

  Would you have been better off investing in the S and P 500?

• 1:35:02Speaker 01

  It's interesting. Yeah, I've looked at that, you know, the index funds. I would say that's obviously one of the bigger ones, most notable. I looked at, over 90 years, it's been 10%, I think, right? Seven, that's nominal though, 7% adjusted for inflation, I think. So maybe. You know, the thing is, if I'm, if I'm, if I'm cashing that out, I'm paying tax on it as well. And in, in real estate, I can make more than 7% and I can get it out. I can get my money out tax free. So I get, I get the tax benefits from real estate. I get leverage, of course, and I get the tenants pay, pay my loans off.

• 1:35:47Speaker 01

  And I get inflation. So I get all of those things on, on the real estate side. So I think the index fund is easy, certainly. Doesn't take a lot of knowledge to do that. I'm certainly not averse to it at all. I do believe in diversification and I'm heavy in real estate right now.

• 1:36:06Graham Stephan?

  See, it's interesting. You, you talked about being better off not selling anything. Because I remember when I got into real estate, I would ask all these people that were buying multimillion dollar houses. What their thoughts were on the market and their advice for me. And they always said, my biggest regret is selling this piece of real estate that I bought. And I wish I had just never sold anything. And I'm at a point now where I'm starting to sell off my rental properties. Because they're located in California, for one. But also, I don't want the headache, the liability, the management, the headache. And I'm looking at my income that I make from those rentals. And it's not bad, but I look at it in proportion to everything else.

• 1:36:48Graham Stephan?

  And I say, what bother when that's taking up 80% of my mental stress? For these things that just really don't yield anything else in comparison to what else I could do.

• 1:36:57Speaker 01

  No, you have to look at it that way. I agree, actually. I look at my equity against my return, no matter what I bought. So I call it imputed equity, whatever the equity is today. You know, obviously, it's gone down in the last few years, apartments have for sure. So, but I always look at that, like, what is, you know? How much money do I have sitting there? And what is it making? And what could I be doing with that? Then I calculate tax and all that kind of stuff in there. So I'm not averse to that at all. I'm continually, we just did a very, very big five property. It's called a recap. So I took five properties that I've owned a while. And we had a significant amount of equity in there.

• 1:37:42Speaker 01

  We actually pulled 77 million out of that, of those five. And I had refinanced them multiple times. And I had a tax problem too. Because you sell it, you got a depreciation recapture and all that. So, so we did 1031s into new assets. So I was basically taking 80s property, 80s and 90s property. And rolling the equity tax free into, into new stuff. 2022, 2021, 2023 construction. Less cash flow initially, but I'm upgrading. And what, the reason I did that is because. The the amount of equity sitting in those assets versus the return was was not what I

• 1:38:27Speaker 01

  thought I could do by by moving because again, I'm looking at aging properties, you know, an eighty in eighties property is, you know, it's it's forty five years old. And so you you start to have these serious big things that happen from a capex standpoint in properties that you own for a long period of time. It starts to creep up. Things get older and and it costs money. And so you start to take a look at that and and you start to calculate, you know, where's this money best? Well, how do I how can I move it around? And that's all I'm doing right now. It's it's like the end of a Monopoly game, you know, when you're just moving stuff around. And that's essentially what I'm doing. And that's why I'm here. Actually, this is a this

• 1:39:11Speaker 01

  is a ten thirty one exchange into this property. That's what it is.

• 1:39:16Graham Stephan?

  Is there an ideal amount of money to have to do mostly whatever you want to do? What do you think that number is?

• 1:39:23Speaker 01

  Outside of real estate?

• 1:39:23Graham Stephan?

  Sure.

• 1:39:24Jack Selby?

  Just a good net worth to have?

• 1:39:26Speaker 01

  Um, I think it's all excessive, honestly. I mean, you know, I think at some point,

• 1:39:34Speaker 01

  we brought on a full time director at philanthropy and she worked for us. She's on our payroll. Eight years ago, we started doubling down on that. You know, there's a there is a point where you're like, okay, we have enough, right? And and then the next question is, is how do you preserve what you have? Do you should I grow it? Should I not grow it? Should I educate? You know, why do I do my YouTube channel? That's precisely why. So I'm having fun doing all that. You know, I think it depends on what different people believe their beliefs are, you know? So some people never stop, you know, and I think that's dangerous. Some people, you know,

• 1:40:17Speaker 01

  stop too early. And I think that could be dangerous. You know, I just heard a story the other day where, you know, somebody stopped at five million dollars and they live in Newport Beach. I said, well, that's gonna be maybe ten years, you know, right? Okay, well, so there you go. So five's too little. It seems like a lot to me, you know? So I think it also depends on what your expenses are and what you spend money on, right?

• 1:40:41Speaker 01

  You know, I used to have a lot of cars and lots of houses and stuff like that and I don't anymore. Right? I'm like, I'm going the other way. I'm paring down. I'm simplifying.

• 1:40:49Graham Stephan?

  Now, we've heard from other guests, though, that say that, you know, with 10 million, you could do pretty much whatever you want. With 50 million, you could get 98% of what a billionaire has access to, just outside of like mega yachts and flying private.

• 1:41:03Speaker 01

  I agree with that. Yeah, I completely agree with that. Yeah, yeah, I know the math. I mean, that's right. I mean, aside from, you know, those kinds of things, but the reality is, is I still rent those yachts, you know, I mean, just for a week or two and then you throw the keys and same thing, right? Like, my wife and I, we just went down to Manhattan Beach and, you know, rented a huge house on the beach for a couple summers ago. There was a big check to write, but boom, done, move on. And so I don't have to own a 20 million dollar home, you know, when you can rent it for 60 days in the middle of the summer. So, yeah, and part of that is, is,

• 1:41:43Speaker 01

  you know, I was getting to the point where it was a pain in the butt. Like, you feel guilty. You buy something somewhere and you're like, I need to go use it, right? So you go use it, or then you have a whole team of people there watching it and all this crazy stuff and it's just, it turns into nonsense. It's precise. I had nine cars at one time. Same thing. You gotta drive them, you gotta run them, you need somebody, you know, I mean, the batteries die and, you know, there's all kinds of things that you realize as you start to get excess and then there is a point of excess, too.

• 1:42:18Graham Stephan?

  What was the biggest pain in the butt to maintain?

• 1:42:21Speaker 01

  The main houses, all the houses. Yeah, just the pains in the ass. Like, so with my properties, yeah, I have, I have 300 employees. So, I, I have maintenance guys, we have leasing people, we have managers, you know, we have really, really, really smart people running everything. I own the management company and the asset management company and the development company and the construction company. So we have four main companies.

• 1:42:48Speaker 01

  The ones that were paying the butts are the are the single house over here that I owned that I had nobody, right? Because then I had to find somebody that I didn't trust or know yet, maybe, you know, in some remote area. And you know, you're trying to cobble that together, like the landscapers or the maintenance people, and you're not there, you got to fly out there. And so so there's all these things that that you have. So there's that. And then we would show up sometimes. I had a big home on a lake in a court lake Coeur d'Alene up in Idaho, right downtown, I would get up there and it'd be two to three weeks of meeting with all those folks to try to get it back to, you know, stable, you know, whatever, stuff from the winter or whatever it was. And we've lived in the house

• 1:43:31Speaker 01

  for a month or two. And then and finally, my wife, like, you know, like, you know, half your time is spent on the maintenance of this house. So so so I said, You're right. So started cutting back on all that stuff.

• 1:43:45Graham Stephan?

  What net worth do you have to have or that you should have to buy a $10 million house?

• 1:43:49Speaker 01

  I well, a lot of it depends on your cash flow. So if you have no if you if you're and I will get there. You can be an extremely high compensated person in a tech business with a lot of equity on paper and buy a house like that, as long as you have the income coming in. Same thing with a surgeons or whatever. But if you're gonna if you're gonna retire on something like that, it depends on your age. But I think you need easily, you know, 3040 billion would be would be probably comfortable for me. And that that, you know, I don't have debt on anything personal. That's the interesting thing. All my cars

• 1:44:30Speaker 01

  and houses and anything that I have is is paid off boats, all that stuff. It's all paid off.

• 1:44:35Graham Stephan?

  I was always under the assumption that the house should be one fifth of whatever net worth should be. So if you buy a $10 million house, you should be worth or have liquid assets 50 total. We're talking to someone recently who was saying that a lot of people will stretch, they'll they'll max out whatever they could buy and their net worth could be way less than something like that. But they get in because the, you know, they can afford it every month, but they're one paycheck away.

• 1:44:57Speaker 01

  Yeah, that's that's really dangerous. Yeah, extremely dangerous. Yeah, I don't agree with that at all. You know, if if you have significant cash flow coming in and it's consistent. So as an example.

• 1:45:13Speaker 01

  All the properties I own pay my management company every month. So I'm the general partner and I own the management company. So I pay myself. That's how that works. So, so that company does three, 400 grand a month. Then I have an asset management company, same thing. So, so the assets I own pay the, so I have a guaranteed stream of income coming in from, from assets that I already own indirectly. Plus I get distributions from them too, right? And cash flow itself, but somebody has to manage it. And, and so the management company so, so does.

• 1:45:54Speaker 01

  And so when you have certainty in something like that, then, then I think buying something like that where the payment might be 20, 30, 40, $50,000 a month, uh, which is about what it is, um, is not a problem. You know, again, it depends on the cash flow, but if you're, you know, like what you described, I think that's risky.

• 1:46:16Graham Stephan?

  Does money buy happiness?

• 1:46:18Speaker 01

  No, God, no. Not even close. Not at all.

• 1:46:22Graham Stephan?

  Have you found though, that your life satisfaction has increased the more money you make?

• 1:46:26Speaker 01

  No, it's gotten more complicated for sure. For sure. The more money you make, the more complicated it is.

• 1:46:34Graham Stephan?

  Then why, then why, keep going. Why not scale back to a point where it's just the ultimate balance?

• 1:46:40Speaker 01

  Yeah. Well, so because I don't equate money to happiness. I equate money to time. That's it. So, so time is the reason I do this. So time is super important. Time with my kids, time coming here, you know, time away, time with my wife. I'm here in Vegas with my wife. That's, that's really where it's at. So if you have money coming in, then, you know, then, then that's what you use it for.

• 1:47:09Graham Stephan?

  And why do people have money, but don't feel wealthy? Where's that?

• 1:47:14Speaker 01

  Like this guy. Wow. Like Graham. Yeah. Well, I think it's interesting. It's a phenomenal question. I go back to mindset. I think, um,

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• 1:48:17Speaker 01

  I remember as a kid, we would be checking out somewhere. My parents and my mom would say, "We can't afford that." And it was true. You know, they couldn't, right? They're good people, don't get me wrong. But, you know, we shopped at their stores and that, you know, that we, a lot of our stuff, that's what we did. So, so how, so you break through, you have to break through the mindset, that mindset, right? I had to.

• 1:48:46Speaker 01

  And now, of course, I want to, like, what is risk? You know, what is risk really? Is it, to me, it's predictability. And that's why I get freaked out a little bit with stocks and crypto, is I feel like I, because I understand the management, I understand, I can predict, to a large degree, the direction of an asset, especially if I buy it correctly. So, so, so getting back to the money and the mindset, I think that it's a belief system. The belief system creates the mindset, for sure. It's, it's how you think. And then from there, it's habits and routine, right?

• 1:49:25Graham Stephan?

  Is there any dark side of success that people don't talk about?

• 1:49:28Speaker 01

  Oh, health, I would say is a big one. Mental health, physical health, for sure.

• 1:49:32Graham Stephan?

  What have you seen?

• 1:49:33Speaker 01

  Oh, all kinds of bad things, like, I mean...

• 1:49:38Speaker 01

  I think, well, money, money makes people have big egos. They think it's money, like somehow they think, look at this, I've, I've made it. And all of a sudden they're, they're better than someone else. I see that a lot. Doesn't really mean, you don't have to be really wealthy for that. I usually see it in the first time, like I see it in young people. You know, a lot of young people, they make something real quickly. And then all of a sudden they feel like they're better. The problem is, um, it goes away pretty quickly unless they can sustain that.

• 1:50:18Speaker 01

  But on the dark side, to answer your question, so ego oftentimes, um, doesn't allow you to shut off the health and the mental piece. So like, what's, what's most important? If you were to ask me what success is, I would say that it's family and health. Period. Right? And those are interchangeable at times, but I would say without your health, you got nothing. So I see, there was a time I went to, um, in my YPO, I went to a talk where a guy owned a series of these health spas, like these, you know, and it was pretty big. And he was putting them on cruise ships and it was a real big brand.

• 1:51:00Speaker 01

  And, um, he would say, this is, this really hit me. He said, the CEOs roll in here extremely unhealthy, big guts, poor health, can't even walk up a hill. And they come here for a week and they want me to fix them. And it kind of summarizes everything. I think what happens is people prioritize money over relationships and health. And I think that's a huge danger.

• 1:51:29Graham Stephan?

  Do you ever get people just asking you for money?

• 1:51:32Speaker 01

  Oh yeah, of course. All the time.

• 1:51:34Graham Stephan?

  All the time.

• 1:51:34Speaker 01

  I have a rule and, uh, yeah, I give money out.

• 1:51:37Graham Stephan?

  What's the rule?

• 1:51:38Speaker 01

  It's, it's really simple. I got this from my good friend who, um, started California Closets. And when he exited, you know, we were talking one day and he's like, this is my rule. I go, that's a great rule. So if somebody comes and says, hey, I need, I don't know. Usually it's a low number, right? Right. He's like, always take it, always take the first one and say, listen, it's not a loan. It's a one-time gift. So you give them the money. And you don't have to pay it back, but you can't ask a second time. So, and that's worked.

• 1:52:14Graham Stephan?

  Can I have $50,000?

• 1:52:15Speaker 01

  Yeah, one time.

• 1:52:17Graham Stephan?

  Deal.

• 1:52:18Jack Selby?

  Don't, don't. No, no, no, no, no, no, no.

• 1:52:20Graham Stephan?

  What do you mean no?

• 1:52:21Jack Selby?

  No, no.

• 1:52:22Graham Stephan?

  It's one time, it's a gift.

• 1:52:23Jack Selby?

  No, no.

• 1:52:24Speaker 01

  It's a gift.

• 1:52:24Graham Stephan?

  You didn't ask first.

• 1:52:26Jack Selby?

  Alright, I'll take 51. No, I wouldn't, no.

• 1:52:30Speaker 01

  But that's it, that's it. It's, it's simple.

• 1:52:33Jack Selby?

  And so have people ever came back to you after you gave them that first time?

• 1:52:35Speaker 01

  Very rare, but because I, I give them the release, like, you know, I'm, I, listen, if they need it, I'm good with it, like, you know, if they're, if they're friends and depends on what they want it for. I do ask.

• 1:52:47Jack Selby?

  So I am curious though, if everything you do is to get back time.

• 1:52:52Speaker 01

  Mm-hmm.

• 1:52:53Jack Selby?

  Purpose of money is time.

• 1:52:54Speaker 01

  Yep.

• 1:52:55Jack Selby?

  Aren't you at the place now where you don't have to pursue money anymore and you have enough to be able to do whatever you want with your time?

• 1:53:02Speaker 01

  Yeah, yeah, but see, now what, I, that's a great question now, you know, but I, I got my company on autopilot. Like, I don't have an office in the office.

• 1:53:10Jack Selby?

  Yeah, but you are here in Vegas.

• 1:53:11Speaker 01

  Yeah, I'm having fun.

• 1:53:12Jack Selby?

  Checking this place out.

• 1:53:13Speaker 01

  I know, well.

• 1:53:13Jack Selby?

  You got a free water.

• 1:53:14Speaker 01

  Well, it's, here's why, again, it's, it's, I'm managing my money, right? It's, it's coming out of a 1031, so do, I, I definitely want to see where it's going. Right, it's moving into a new asset, so it's worth a trip. Uh, you know, and, uh, we're going to a-

• 1:53:30Jack Selby?

  And you get to come to Vegas.

• 1:53:30Speaker 01

  And we're going to a show tonight, so.

• 1:53:32Graham Stephan?

  What are you saying?

• 1:53:33Speaker 01

  Um, I don't know, what are we, comedy? Yeah, comedy. How much do you work? Hmm, 10 to 20 a, a week, a lot on the YouTube, actually, probably half of that is YouTube. I know, because I'm trying to figure it out, like, it's so bizarre to me.

• 1:53:47Graham Stephan?

  It's fun.

• 1:53:48Speaker 01

  Yeah, uh, I, I'm enjoying that piece a lot.

• 1:53:52Graham Stephan?

  Your YouTube video is really good. I found you a while ago when you made a video about having FU money.

• 1:53:58Speaker 01

  Yeah.

• 1:53:58Graham Stephan?

  I remember seeing that, I'm really enjoying it.

• 1:54:00Speaker 01

  Thanks, yeah, yeah, I wish I could say it was my idea, but, um, I had a, a youngster that, uh, uh, said, this is a great video we should do, we did it, I'm on my, uh, on my jet.

• 1:54:10Graham Stephan?

  Yep.

• 1:54:11Speaker 01

  Yeah.

• 1:54:11Graham Stephan?

  I remember seeing that and I loved it. I thought it was really well put together.

• 1:54:15Speaker 01

  Thanks, thanks.

• 1:54:16Jack Selby?

  When did you realize you had FU money? And what is FU money?

• 1:54:21Speaker 01

  Well, I have a really good friend that took his company public and I was playing golf with him a couple of months ago and he's like, I can't spend what I have and I think that's it.

• 1:54:33Speaker 01

  You know, you can't like you get to that point where there's so much cash flow coming in. You got so many assets that, you know, it's basically going to transfer to someone.

• 1:54:45Graham Stephan?

  So when did you realize you had that?

• 1:54:48Speaker 01

  Over 10 years ago.

• 1:54:49Graham Stephan?

  And did anything in your lifestyle change because of that realization?

• 1:54:53Speaker 01

  No, the only thing that changed is I, I, I figured out my trusts for my kids, right? And I want to make sure that they're taken care of. I did buy a jet because I'm flying around and, you know, I like, like a flew today for, you know, for, to, to check these out and, and, and I actually, um, it's, it's nice. It's nice to, you know, pop in somewhere and fly back. I mean, we'll fly back in the morning.

• 1:55:21Graham Stephan?

  How much was the jet? How much does that cost to run?

• 1:55:23Speaker 01

  Yeah, was it? It costs us about 400 a year ish, 4, 500.

• 1:55:31Graham Stephan?

  Yeah. And how much was it to purchase?

• 1:55:32Speaker 01

  Uh, we, we paid about 3 million for it.

• 1:55:34Graham Stephan?

  That's not bad.

• 1:55:36Speaker 01

  No, that's a, it's a, it's a Phenom 100 and that's hangar, pilot, fuel, everything. And by the way, my partner and I own it together and.

• 1:55:46Graham Stephan?

  So you split it?

• 1:55:47Speaker 01

  Yeah. So, you know, call it 20 grand a month each and.

• 1:55:52Graham Stephan?

  That's really not bad at all. How far can you go in it?

• 1:55:55Speaker 01

  It's a, we fly to, um, it's like 1,200 nautical miles, I believe. So we can fly to Dallas, we fly to Houston.

• 1:56:03Graham Stephan?

  Nice.

• 1:56:03Speaker 01

  Um, and, and so what, what, sometimes what I do is we'll fly somewhere, land in the morning in Austin, let's say, um, and we'll have a car picks up. We'll go look at four or five of our projects and then we'll, we'll literally be heading back at three, four o'clock that afternoon.

• 1:56:19Graham Stephan?

  Oh, that would save us so much time. I mean, the travel that we do, we, we spend an extra day getting somewhere because we know that we have to book on these times and we finish the podcast or it's not a good flight. And then we have to wait a few, it's, it's a dream to be able to go.

• 1:56:33Speaker 01

  That's what I'm saying. It literally, you start, you start to think of these things like, you know, what, what is time worth?

• 1:56:39Graham Stephan?

  So when can you buy a private jet? How do you know you're ready?

• 1:56:43Speaker 01

  When you have the cash flow coming in. So I had, we have cash flow coming in on all our businesses and I wanted to make sure. So I, I like you, don't like to take, I don't like to dip from my, my nest egg, right? I want there to be enough cash flow to be able to pay for whatever I'm going to do next. I very rarely take chips off the table. I'm usually at this point moving money around from asset to asset.

• 1:57:05Jack Selby?

  So that's the same thing that Graham kind of does and I try to do.

• 1:57:09Speaker 01

  Yeah.

• 1:57:09Jack Selby?

  Which is however much money your investments make, that's the amount of money that you can spend. As opposed to like your active income, the active income.

• 1:57:18Graham Stephan?

  Yeah, this I don't, I never count any of this as income because it like, I've seen it disappear.

• 1:57:23Speaker 01

  Yeah.

• 1:57:24Graham Stephan?

  So quickly and like, you know.

• 1:57:25Jack Selby?

  Store as much of it as possible.

• 1:57:26Graham Stephan?

  Right.

• 1:57:26Jack Selby?

  And then spend maximum 4% of what your investment portfolio is.

• 1:57:31Speaker 01

  Yeah. So I'm very similar to them or not. It's just that we have so much coming in now because of our assets.

• 1:57:36Jack Selby?

  So what are the best things to spend your money on? The highest ROI, not necessarily from an investment perspective, but just from a quality of life.

• 1:57:43Speaker 01

  Yeah. I think a natural path, um, your blood work. Um, I'm on a cleanse right now, like literally.

• 1:57:50Jack Selby?

  Really?

• 1:57:51Speaker 01

  Yeah. In the middle of one. Um, it's a 10 day one, so it's not that far, but I've done 21 days. Certainly anything health related. Uh, gym, uh, for sure. Relationship stuff. Um, I just took my kids. Uh, two weeks ago, I did a big fundraiser for the Navy SEALs, uh, to, in San Diego, uh, Coronado. Um, we, we raised 300 million or 300 million, 300,000 for them, uh, Beyond the Brotherhood, great organization. Uh, brought my kids, we did some Navy SEAL training. So those kinds of things like, uh, where, where can I take my kids? I'm taking them to Mexico soon.

• 1:58:26Jack Selby?

  How old are they?

• 1:58:27Speaker 01

  They're in their twenties. Yeah. They both work for me too. So it's very exciting. Not, not directly.

• 1:58:32Jack Selby?

  Yeah. Do you feel like you need to overpay your children?

• 1:58:35Speaker 01

  I don't even know what they make. Like, uh, I swear they, they're, they're paid market, whatever that is.

• 1:58:40Jack Selby?

  So it's, there's no nepotism involved here. They're just getting paid market.

• 1:58:44Speaker 01

  I. Yeah.

• 1:58:46Jack Selby?

  Do you think nepotism is a bad thing?

• 1:58:48Speaker 01

  It can be. It can be harmful to the culture. So, yes, I mean, obviously, parents love their kids and they want them to work with them a lot of times. But sometimes they're, you know, if they're sitting, if they're rubbing shoulders with, you know, a C-suite person or somebody, a director or a manager of a department, and they're not capable, then for sure, the culture gets pulled down.

• 1:59:15Jack Selby?

  Was there intent and purpose behind the way you raised your kids to make sure they wouldn't become the person to rub shoulders with a C-suite or executive?

• 1:59:23Speaker 01

  Well, they're on different paths, but I will tell you how I started.

• 1:59:29Speaker 01

  I started with barter. I never, I have never given my kids money or allowances or anything. So I always started with, okay, like, you guys can figure out how to make money. Like, and so we started with barter. So really simply, I belong to a golf club up in Idaho. And they used to get, we used to go out and get golf balls at night. Now, it doesn't seem like much, but when you're six and eight years old, you know, they would make a thousand dollars a summer, right? And then I would take half of that money and I'd stick it in a jar. And I said, okay, you can spend half, but we're gonna take half. Now, you need to decide what's the next business. And then they would go on YouTube and go figure stuff out. The next business was duct tape wallets. I was like, okay, great.

• 2:00:12Speaker 01

  So we'd take them to Home Depot and there were lessons in all of these things. Okay, how much is the tape? How much is the cutter? How much is this? How much is that? Okay, so you need to sell 10 wallets to get this back. And so there's, and then, then, then the next thing is we actually created a website for them called createyourontune.com. And so by the time they got in high school and college, they were, they were buying stuff on eBay, selling it. They were, they were, they were doing things for, for money. My son was repairing iPhone screens back when you could and making whatever. And so by the time they, and by the way, that's not all foolproof either, but by the, by the time they, they got to the company.

• 2:00:56Speaker 01

  You know, they they just appreciated things because they weren't giving them.

• 2:01:00Jack Selby?

  That's interesting. I resonate with that as well, because when I was growing up, I didn't have an allowance. When I finally did get one, it was only achievable through a bunch of chores.

• 2:01:09Speaker 01

  Yeah.

• 2:01:10Jack Selby?

  Throughout the house, so I kind of had to earn it. It wasn't anything that was necessarily gifted to me. And I remember the only other job I could have was I could pick up palm fronds. When wind would blow, it would blow these long, skinny palm fronds onto our front lawn. And for every palm frond I lifted up and threw away, I got one penny.

• 2:01:29Speaker 01

  Oh.

• 2:01:30Jack Selby?

  One penny per, and you can confirm with my dad, next time you see him, it was one penny.

• 2:01:35Graham Stephan?

  How old were you, like 13?

• 2:01:37Jack Selby?

  Oh, like I literally, this was like one of the only ways I could make money. So I would do this as long as I could.

• 2:01:43Graham Stephan?

  You would make more just picking up change off the streets?

• 2:01:46Jack Selby?

  It was annoying because I had to like count them too. And so I would be able to pick up a couple hundred though, so I get like two or four dollars maybe max. They were not huge. They were like skinny and long, so.

• 2:01:55Graham Stephan?

  But.

• 2:01:56Jack Selby?

  Yeah, and that actually.

• 2:01:57Speaker 01

  The lesson though.

• 2:01:58Jack Selby?

  The lesson was the value and importance of money and hard work and how money can only be achieved through work.

• 2:02:04Speaker 01

  Yep, and it worked, obviously. Look at you.

• 2:02:07Jack Selby?

  Did, thank you.

• 2:02:07Speaker 01

  Seriously. Your dad raised a good kid.

• 2:02:10Jack Selby?

  Thanks. And this guy will sometime soon, isn't that right, buddy?

• 2:02:14Graham Stephan?

  Well, one day.

• 2:02:15Jack Selby?

  So, okay, that's it. Thank you so much for coming on the Iced Coffee Hour. That was a great conversation.

• 2:02:20Graham Stephan?

  Yeah, I really enjoyed this.

• 2:02:21Speaker 01

  Yeah, thank you.

• 2:02:22Graham Stephan?

  Yeah, I would love to have you back on at some point again in the future.

• 2:02:25Jack Selby?

  Yeah.

• 2:02:25Graham Stephan?

  I'm sure everyone watching would like to have you back on like a year from now.

• 2:02:29Jack Selby?

  Yeah, yeah. If cap rates change by another percent.

• 2:02:31Speaker 01

  We'll see what happens.

• 2:02:32Jack Selby?

  We'll make another 500 million dollars.

• 2:02:33Speaker 01

  I don't know, I don't know, you know, more charities, right?

• 2:02:36Jack Selby?

  So we'll see. Thanks so much for coming on the show.

• 2:02:38Speaker 01

  My pleasure.

• 2:02:38Jack Selby?

  Thank you guys so much for watching and you may notice the shot looks a little bit different. We're filming in a new location.

• 2:02:45Graham Stephan?

  Yeah.

• 2:02:46Jack Selby?

  We still haven't really revealed much about this, except to the members, if you want to join the members down below.

• 2:02:50Graham Stephan?

  Yes. Oh, you know what? For the members, if you join, you're gonna see a full office tour. We haven't done it since, uh...

• 2:02:57Jack Selby?

  Should we do a new one?

• 2:02:58Graham Stephan?

  Yeah, let's do a new one.

• 2:02:59Jack Selby?

  Okay, we'll do a new one.

• 2:02:59Graham Stephan?

  Just for you guys.

• 2:03:00Jack Selby?

  So you guys get behind the scenes content, but also thanks for coming on. Thank you guys for watching. We're only able to do this because of you. So this warehouse is because of you guys. We could not thank you more. Thank you for watching. Till next time.

• 2:03:11Graham Stephan?

  See ya.

• 2:03:22Speaker 06

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