Misconceptions in Finance and Real Estate: How To Start Investing With Toni Shackelford

August 10, 2022




CWS 212 | Real Estate   Are you looking to start investing in real estate but unsure where to start? Joining Chris Seveney and Lauren Wells is 7E Investments‘ newest team member, Toni Shackelford. Toni is our marketing manager and is a fresh college graduate just two weeks into the job. She comes to us with her generation’s perspective on real estate, investing, and finance. In this episode, Toni chats with Chris and Lauren about the misconceptions she had about real estate investing. In return, the two hosts share tips and financial advice to help guide new and aspiring investors in the space.

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Misconceptions in Finance and Real Estate: How To Start Investing With Toni Shackelford

In this episode, we are interviewing our newest team member, Toni, who we have brought on as our Marketing Manager here at 7E. We want to talk about misconceptions about finance and how to get started in real estate with someone who just graduated college. I graduated from college in June 2022 and I started here in July 2022. I still don’t know a lot. This is good. We haven’t given her the full fire hose yet so she’s fortunate. I’m glad I could have my Santa Barbara sisters on. For those who are reading, we got Toni and Lauren all dressed in black. I feel left out. We thought this would be a great episode to discuss a lot of the misconceptions because people, probably before the age of 30, have been investing in a real estate market that has been positive. As we start to hit a little bit of potential pudding, it’s interesting to get some of the thoughts from somebody who is brand new to the space. Toni, thank you for having us. The first question I was going to open up right at you is, as somebody who’s just got out of school when you hear the term real estate investing, what’s the first thing that pops in your head? When I think of real estate, I think of being a landlord and renting your house out, how you lived in college when you had an agency that you rented from. I think of HGTV and you’re flipping houses. Some people have flipped houses. When I think of real estate, it’s not the deep depths of mortgage notes, which I had never heard of until Lauren called me. Don’t feel bad. I didn’t hear about them until 2016, which for me, was old at that time. The first number was still a four. It was twice your age when I learned about that. Toni, you had another friend who did work in real estate. When I was introduced to you about this position, what was your initial thought? I was intimidated at first. The first thing I did was read your first episode. I was like, “It’s not that scary because everyone does seem like real people.” I felt like even though I didn’t know anything about it and I had to have an interview with you, I could quickly learn a couple of key things and you would help me along the way. It wasn’t like talking to my friend that was in real estate. Her dad is more of construction-type stuff but she knew so much about this. I was like, “Even though she’s teaching me the broader part, it all connects.” When you think or hear about real estate investing like landlords, HGTV, somebody who was a tenant in college or a real estate investor, do you think that it’s easy where people are making a lot of money? I’m curious from a finance perspective. When you graduated, was it something interesting to you, out of curiosity? In my generation, especially with social media and stuff, people make it seem super easy. They’re like, “Three easy steps to buy this house and rent it out to people.” I never knew how I’d ever get my foot in the door to even begin real estate. First of all, I’m like, “How would I be able to buy a house? How is that one of the simple steps?” Having you teach me a different path of getting into it was something I never thought would happen because I feel like my generation was like, “This is super easy. You have to do this.” It’s the things that don’t make sense for everyone unless you already have a bunch of money. Chris, you and I talk about this a lot. You sent me an article about someone who went from 7 doors to 70 doors on BiggerPockets. You may have seen a post or something. My first comment was, “Yes, but what are they paying in debt on that?” I am not of your generation but I do know that there are a lot of social media influencers that do hosts like, “It’s three easy steps to get into your first flip.” There’s not a lot of numbers behind it or like, “I want to know. That’s great. You flipped.” What did you make? What was the profit on that? Is that sustainable? Would you feel that’s what your generation is saying that’s easy? Yes. Everyone says it’s easy. It almost feels a little scammy. I’ve seen certain things on Instagram or things like that where they’re showing all these cool things they bought because they have gone to this real estate. It’s like, “How are you doing that?” They’ll be like, “You have to buy my book to understand it.” It seems like all a scam but they’re all my age. I’m like, “How are we doing that?” I see a lot of people who were doing the Airbnb arbitrage. They’ll go to apartment buildings, rent them and try to Airbnb them. COVID has put a false sense of comfort in people because if you leave your pet in a cage for a while and they get out, they get excited and want to go do a lot of different things. That’s what we were the last several years of being locked in our house and not being able to go anywhere.
CWS 212 | Real Estate

Real Estate: Social media makes it seem super easy.

  That’s a horrible analogy but everyone got excited like, “I’m going to go do this and that.” People were arbitraging or getting all these short-term rentals and making so much money. Once things go back to normal when the economy is starting to settle and inflation and everything are expensive, people aren’t going to be able to make those trips or go there. People who have been buying all this real estate over the last several years are basing all their numbers or their revenue based on fictitious numbers. If you’re a sports fan, let’s say your Cleveland Brows fan where they have one good year, it’s like, “The ticket is going to be expensive for that one good year.” They stink for the next 25 years. That one year is an anomaly. People make it come out to be easy but it was the same thing roughly years ago, from 2004 to 2006, where you could buy a house and 3 weeks later sell it for $50,000 more. People kept doing that. All of a sudden, we’ll get pulled out from underneath them. Everyone’s house values dropped by 30% or 40% and they’re stuck. I see people on TikTok bragging on the beach, “I got 3,000 doors and $300 million in debt.” It’s okay because they’re all using DSCR loans, which are debt service credit ratios. It has nothing to do with you as a person. It’s solely based on the asset itself. How much revenue it’s bringing in versus how much the expenses are to make sure you can pay the mortgage. Those loans can be called at any time. If vacancies increase or they are not making that money to pay, they’ll turn around and call the loan. That’s what happened years ago. That’s created this whole other part of another disaster but that’s the next thing that we’re going to see issues with. I was going to circle back to Airbnbs because that’s also something I see everywhere. People are putting all their numbers on how many Airbnbs they have, how many weeks out of the year that they’re getting rented and all this money they’re getting back. I feel like if it was that easy, everyone would do it. I agree and disagree. Airbnb is an interesting concept. It’s a sacrifice that some people are willing and able to make where they’re either staying with parents and renting out their house. When they’re Airbnbing, they’re moving around a ton. At a certain stage in your life, if you can get in and Airbnb, that’s something for us that I’m not willing to do. I’m not going to uproot my whole family for a weekend to Airbnb my house. I also think there’s a false sense of security that’s come from COVID. When it comes to short-term rentals and with the market that’s rocky, short-term isn’t where I would want to be. I had a question for you, Toni. I’m letting you speak for your entire generation. We talked about your goals personally and stuff but what would you say are things you hope to learn when it comes to investing? Coming from college and not understanding different types of investing, I thought the only way to get into investing was the stock market, which is also another scary thing to look at when you’re getting out of college and having money to start investing in the first place. My goal with investing when I was fresh out of college is I want to learn enough to be able to put my money somewhere that I could have that passive income but I honestly was out of the loop and my friends too. I can attest to that because I’m with you. You need to learn everything so that we know what to invest in. It’s crazy that many college students and fresh out of college students don’t know where to even start. Having other options besides the stock market is beneficial and more people need to know about it. I was going to roll into that because when I graduated college back in 1997, we still had 401(k). Roth started right around that time but for me, I have never heard of Roth until several years ago. By that time, I’m like, “I’m too old to put it in a Roth. I got to keep everything in my 401(k).” What type of knowledge, out of curiosity, is all between high school and college? Did they teach you about tax-deferred income or 401(k)? Do you learn that anywhere? The only reason why I even knew it in college at all was that I had a summer job. When I got my paycheck, I saw part of it went away and someone said, “That’s going into your retirement.” That was my only thought. I never thought of it again. I didn’t even ask anyone about that. Another thing we should touch on is the difference between Roth and traditional. You have taught me that. I bet there are a ton of people that don’t understand and a whole champ doing Roth. I’m doing Roth because they all said, “I’m young enough.” If it’s an age limit, why aren’t they telling us to start that one immediately? Both of ours are traditional. We’ll start back a few steps. When you graduate, if you’re being employed by someone, sometimes you have the option to opt into their employer-sponsored 401(k) plan. I remember when I first did it, you go through the whole onboarding process at your company and you’re supposed to fill out all this paperwork. I’m like, “Do I do a Roth 401(k) or a traditional 401(k)?” You’re supposed to elect an amount that gets pulled out of your paycheck. The difference is whether you want that amount pulled out pre-tax or post-tax. What do I mean by that? When you elect to have a Roth 401(k), the money is coming out post-tax. You’ve already been taxed on that money that they’re putting into your 401(k) account. If you choose traditional, that means that the money is not being taxed before it is put into your 401(k) account. Why does that matter? It matters because when you retire or reach the age of 59 and a half, you can start using that money. If you have a Roth account and you built it the whole way, you’ve already paid all your taxes on it. If you choose traditional, you pay the taxes upon this first month of the funds. In short, do you want to be taxed on that money now or later? Chris, I’ll let you speak to factors to consider. You and I met with someone about what’s best. I’ll let you speak to why would someone choose a Roth and why would someone choose a traditional account. If real estate investing was that easy, everyone would do it. Click To Tweet For anybody younger, the Roth is the way to go because anybody who’s turned on the news or goes to the world debt clock or something, whatever that website is, to see how much debt the US is in, knows that we keep getting in more debt day by day. The only way to decrease the debt is through either cutting costs, which government doesn’t have to do or increasing taxes, which they’re good at doing. Eventually, we’re going to have to pay the Piper. Taxes are eventually going to have to go up. If you’re paying it now, the taxes most likely when Toni goes to retire will be able to take that money. We can go and take that money if the tax rates are much higher. You’ve already paid that. You don’t have to worry about that. What you see is what you get. Whatever’s in there is yours, tax-free. For mine, I’ve always done the traditional 401(k). I haven’t been paying taxes on it. Toni will still be younger than your age. When I go to pull that out, I’m going to be taxed like I’m getting a paycheck. I’ll have to pay whatever my taxes. Hopefully, at that time, I might also take a salary because I’d be in a higher tax bracket. That’s one of the things people will try and defer as much as possible to when they stop working. Typically, when you retire, you don’t need as much money to live off. You’re taking it out on a lower tax basis you’re at. You’re never going to win because you always have to pay but paying earlier is always better. We spoke with someone who we’re going to have on the show. We were asking this question, what makes the most sense when I was setting up my self-directed account? He said that they’d done some studies on this. At the end of the day, it evens out. You’re taxed on it sooner so you have less money to use to invest. You’re able to build it quicker, even though you’re going to be taxed on it if you’re in a traditional, whereas you may not be able to build it as quickly. I’m speaking in generalities with a Roth but what you see is what you get in retirement age. I thought that was pretty interesting to bring up. It comes down to what you’ve invested in. Some people might stay conservative their entire life. Some people may be aggressive at a younger age. If you average 8% versus 12% for the first 5 years, that is going to be a significant difference. I don’t know anyone that goes back and analyzes, “I’ve only made this much in my 401(k) this year,” versus, “I could’ve made this much.” I have a question. We talked about real estate investing, 401(k) and stuff but let’s talk in terms of the mortgage with the payments. When I graduated college, I was looking at buying a car and I could get a nice car for $25,000. When I was looking at it, it was 60 payments. The interest rate was only 6% or something at the time. It was $500 a month. I was paying $30,000 for a $25,000 car. I thought I was getting host. With a mortgage, typically, you’re going to pay double whatever you get. If you get a $500,000 mortgage, you’re going to pay over $1 million over the course of that loan. Is that ever been mentioned at all? No. I know the word interest and what a mortgage is. It’s like living in a house with my parents. I’m also an Education major. I would like to disclaim. We don’t have that major at UCI. Honestly, there are not a ton of options for real estate type of things in undergrad. When I think of buying a house for $900,000, I would think that’s what I’d be paying for overtime. I would never think of the interest. Toni and I were talking and she had some questions for us. We can start with Chris. I want to know how you got to this space because advice on that is beneficial for people my age. It can be such an intimidating field to get into. You said that you didn’t even know what it was until 2016. That means you had all that time in your life before doing however many other things you were doing. It’s refreshing to see other people’s paths. They’re a real person too. They have good advice and knowledge. I’ll try to make this quick. I started working for a development company. I’m a civil engineer by degree. I worked for a general contractor. I’m the guy in a white shirt and tie on a construction site that looks like they’re doing nothing. That was my job. I started working for a real estate developer and the guy I was working for got pissed at me because he’s like, “What do you own for real estate?” I’m like, “My house and stuff.” He’s like, “You don’t have rentals or anything?” I’m like, “No.” He’s like, “How are you going to retire?” You’ve mentioned the 40/40/40 rule. You work 40 hours a week for 40 years. You take home 40% of your income. That’s not going to live 40% of the lifestyle I used to live. My wife and I started buying rentals but we had two little kids that came too much. My wife said, “Stop.” I had some health scares at the time. The squirrel I am of always trying to find that unique acorn. I was first started with tax liens, which I didn’t know but tax liens were boring to me. Everyone could do it and I stumbled upon notes. I realized there are not a lot of people doing it and it’s not easy. People like the gurus were like, “I can do this. I got all this money. Here’s my book. I’ll teach you how.” There are a lot of people who do that. I noticed a lot of people don’t get involved in this because this business is conflict-oriented.
CWS 212 | Real Estate

Real Estate: Having other options besides the stock market is very beneficial and more people need to know about it.

  Working on the general contractor side, we fought all the time with the contractors. I’ve been threatened to get thrown off buildings. It’s very intense. You’re yelling and screaming at people every day. You deal with lawyers. The note side of things of having to get a lawyer involved never scared me. That is what pushes a lot of people away because, in this world, there are also a lot fewer conflicts. People treat each other much more respectfully than they did years ago. I fell into this niche and enjoy what I’m doing. When you read a book about notes, it’s like, “Buy notes and collect a debt.” The person I was speaking with brought up a good point. You have to be licensed to collect it. How did you navigate those rules and regulations and know what to do? You said it is hard to do. How did you get past all of that and then it’s your whole business? When did you take them? I used to be an introvert and very shy. I don’t know what flipped the switch but I ask if I don’t know something. The one thing I’ve always thought I was good at and managing whatever job I was doing is I know where to go to get the answer. That’s the key to being successful. You are not going to know everything but if you know enough to get yourself in trouble, which is who to go to get the advice but make sure it’s somebody you trust to get the right advice, that’s what it came down to. I’d spend the money to talk to my attorney to make sure we are going to do it right. A lot of people like to cut corners on things. For me, I want to do the right thing. I’m more conservative in regards to that. Talk to your attorney and say, “I want to do this. How do I do it?” He gave me the steps and if I need to go do something, I will figure out how to go do it or talk to somebody that’s already been there and done that. I used them as a resource to go get things like the licenses or understanding of the note space because I know the construction, housing and how much a house is worth. All the stuff that went before that of all these terms that were thrown at me of alignments, assignments and all of that, I didn’t know any of that. I’d sit there trying to learn the difference when I was a little kid like the left first right-hand. A loan versus an assignment, which one goes with which. It was almost like, which one is my left hand, which one is my right? As kids, we didn’t know. We do this with your left hand and say, “L for left.” They didn’t teach us that. What advice I give somebody is don’t ask the question of how do you do something. If you do a little bit of research and say, “I was researching this and saw this come up, can you explain that to me?” By showing that you’ve done a little bit of research, it gives you much more credibility and people will want to help you. When Lauren reached out to me, she sent me a voice text about notes. Lauren was looking to learn more about notes. She had done a lot of due diligence and effort in the note space. When she reached out, she had already known enough that it was like, “This would be somebody I would enjoy working with because they’ve already done a bunch of research.” They would be easy to teach compared to somebody that sits there and is like, “Show me everything. Show me how to do notes.” It’s like, “I can’t show you how to do notes.” I know a little bit about your background. I don’t know the order of any of that but what made you make the switch in industries? That can’t be an easy hop. I’m good about talking about myself. I’ll start with that disclaimer. I worked in tech for a long time. My family is in real estate. They’ve always been in real estate. As the oldest child, I refused to be in real estate. It was not until I had my oldest son that I started to be thinking about what life I wanted to provide him. Not just in terms of finances, because at the time, I don’t know what it was like now but you can make good money in tech sales. Financially, that wasn’t the problem but thinking about what time I want to be able to give my kids? That coupled with, for one season, I helped coach a water polo team. I look around and all these parents that were showing up to all the things own their business or were in real estate. To avoid real estate, I started owning my business. I did sales consulting and small business consulting. That was great but I was still trading that time. I had more flexibility but it wasn’t something I saw myself doing long-term. Enter COVID when I got serious about real estate investing. Up until that point, I had experience in managing long-term rentals, acquiring long-term rentals, flipping long-term rentals, getting them ready to rent out and managing them from a property management perspective. Notes were also new to me at that time in 2020. I do what I do, went full speed ahead 150% and tried to learn, read and consume as much content and information as I could. You don't need to copy somebody else's path. Create your own journey. (Chris) Click To Tweet I reach out to people that resonated with me, whether it was how they shared the information, what their accomplishments were or where I saw myself being. That change to shift this way was thinking about my kids, my family, what future and time-wise I want to provide for them. COVID was a great thing to give me the time to do that. One thing I’ll add to that is you don’t need to copy somebody else’s path. Create your journey. Just because your friends are doing something one way or there’s a norm of people you know following a certain path doesn’t mean you have to follow that path. Sometimes if you go off on a little different path or do a little more research on something that you might be more interested in, it can lead you to a better place later on. One thing I tell people is, “ Just because everyone is doing something a specific way doesn’t mean you have to still follow them because what’s right for one person might not be right for you.” Toni, quite a few of your friends are moving into real estate post-college. It’s funny. It’s Chris’s point of doing the same thing because I have a group of best friends from college and some of us were in the same major digging the same classes. We’re doing everything the same so teaching was always what I thought I was going to do. I was a TA for a quarter and I loved doing it but I was like, “This is brutal.” My dad was like, “There’s a ceiling you’re going to hit working for government stuff.” I was like, “I won’t be doing what my friends are doing. It’s scary.” When I stopped, it was crazy because two of my other closest friends that I’ve told you about, found ourselves going more towards real estate. I was like, “It’s not as scary as you’d think because you have people that are doing the same thing as you but in a different way.” I have one friend who’s going to go work for her dad and that’s commercial real estate. My other best friend is getting her foot in the door in BlackRock. When we all talk, we all have things in common but we’re also doing things differently. It’s nice to hear their perspectives as well as mine because we’re all doing things in the same industry that no one ever tells you about in college. Paige and I were sitting down and we were like, “What are we going to do, teacher, lawyer or doctor?” That’s what they teach you in college. That’s all you can do. There’s nothing else. We were saying how crazy we were talking about that. My dad always says, “It’s not what you know. It’s who you know.” That’s true in this industry specifically. My biggest advice for people that are younger than me would be to network as much as you can and make sure you’re making good connections with people that you think are doing cool. I remember I was going into my last semester. I was a civil engineer. We design things that aren’t supposed to move. I was taking a class on Structural Engineering. It’s like designing bridges and stuff. I’m sitting there thinking, “Do I want to sit in a queue for the next 40 years on a computer designing a bridge?” Every bridge is probably going to be similar or a building. We do geo tech stuff in which we learn about dirt and its characteristics. It’s exciting stuff. As I can tell by the look on your face, you look amused. It hit me. I’m like, “I don’t want to do that.” We went by quarters, not semesters but we flipped like, “I’m looking into construction management because that’s a little cooler and you get to go visit sites. You’re doing something new every 1 to 2 years.” It reminds me of when you said, “A teacher, doctor or lawyer.” Your advice is good advice to network and we tied a whole episode on this. Everyone knows how passionate I am about that. Even if you do find yourself saying you had been teaching or gone that route, you still have the time to network outside of that. For people who are looking to get started, you don’t have to start in real estate, join a real estate investment firm or become a real estate agent. There are a lot of ways to educate yourself, even without buying an eBook or going to a mentor or guru. Outside of your full-time job, that’ll give you knowledge. You take that knowledge and ask questions to people. I have a question back for you, Toni. How did you explain your job to your parents like what we do? What was their reaction? It’s funny because before Lauren called me, I had the 4th or 5th person text me about becoming my old high school’s water polo coach and pool manager. I was about to throw my phone against the wall. My mom was like, “You should do it so that you’re doing something while you’re looking for something else to do.” I was like, “No.” I refuse. When Lauren came to me and I was explaining to my mom what this was and what it was, I didn’t know. I didn’t talk about the note as much because I didn’t know what that was but I went more mortgage route. I was like, “They do something with investing with your mortgage. Let’s look it up.” We’re googling things. We’re on the website. I listen to podcasts. I took notes on the podcast.
CWS 212 | Real Estate

Real Estate: If you’re looking to start investing for your future self, if you’re willing to put something in for long-term growth, that’s a good place to start. (Lauren)

  I should look back at my notes. I’m like, “Why?” I was taking notes. I tried to explain it to my parents. They were like, “That’s super broad. Run with it. Do something.” I was against coaching, teaching and going back to my high school. No hate for my high school or any of that. I was far past that. I was like, “I don’t think that will boost me to where I want to go if it’s outside of this.” I was explaining to them more like, “I want to do something else. Why not try it?” Back to networking, they were super down for it because the person that introduced Lauren and me was one of my lifelong best friends. Our parents are best friends. They do a vacation together. It was also back to the networking side of why they reacted like, “Go for it.” They’ve always made me shoot for the stars like my whole life with sports and everything. When my sports career was over, they wanted me to have something to be passionate about again. They didn’t care but I did not explain it to them well at all. I probably still couldn’t explain it in depth but that is why we have podcasts and the “website.” Have your parents listened to podcasts? My dad is a podcast listener. My mom is not. I should ask him if he has but I do have a couple of people that have. My friend Sarah has listened to it and that’s about it because we told her she should be on the podcast if she wanted to listen but I should make everyone do it. They’re going to have to listen because you’re on the show. What has been the biggest a-ha moment in working here? You’ve only been working for weeks in your whole professional career. Most people probably only been in a career for two weeks. I’m impressed that you were like, “I’ll do it.” Chris had this idea before you started. He’s like, “Let’s have Toni on the show.” I was like, “Let’s give her a month.” I asked you and you’re like, “Sure.” Lauren did warn me before I even started working. She was like, “Chris is going to push you out of your comfort zone. He’s made me do this.” I’m prepared to do it the first week. I was like, “Maybe I’ll have to do it.” Even my friends were like, “You’re going to be on podcasts.” I was like, “Maybe, I don’t know yet.” Once you asked me, I wasn’t surprised at all. In Corporate America or anything in general, because it’s your first experience, has there been anything different like, “I didn’t realize this or that?” There might not be anything but I was curious if there was. I feel like I can only speak on our company in general because my thoughts on Corporate America were like you sit at your desk 9:00 to 5:00 and that’s what you do. I don’t even know what people do all day on their computers in Corporate America. Lauren and I still chat a little bit. We get up and do something in between getting everything done. That was something I was shocked about. I was fully prepared to sit here all day but I feel like I’m only speaking about us. Maybe other people can have that same thought but other than that, I was pleasantly surprised that your work-life balance is good as long as we’re getting our things done. Ask your friend that’s working for BlackRock. I would think that 9:00 to 5:00 would be a short day for them probably. They are in front of that computer all day long. In Corporate America, it’s unfortunate that most people spend the entire day in their little world in front and some offices. It depends. Each company’s culture is different but in some company cultures, they don’t even want you to mingle. It’s like the water cooler talk. Every company I’ve worked for, thankfully, has been cool with stuff like that but I know people who work at companies sit in their cubes all day long and plug away. It’s not fun. Some of my expectations when I decided I wasn’t going to go into the teaching industry were, “Do I want to sit at a desk all day?” That sounds miserable. How do you have a life outside of that? You’re going to be tired, drained, pale and out of shape. I’ve always been active and done things. I was like, “How do I have time to find my passions outside of work if I’m stuck like that all day?” A lot of people, recent graduates, might think that and might not be in a similar position as us here at 7E where we do have that work-life balance. You’re an adult. We trust you to do your job mentality but that is the thought of, “When am I going to have time to look into real estate? When am I going to have time or energy to learn how to invest or what I should be investing in?” Would you say that comes up a lot for people your age? At my age, it’s more like, “Where do you start with investing?” We go more towards the older crowd but with this $500 minimum, you could easily hit younger people. A scary thing with investing is how you invest and start. If I have $1,000, do I go to you? How does that whole thing work? Invest in something that generates something. (Chris) Click To Tweet I could answer the $1,000 question component or I was going to ask a question. I’m curious because you’re in a generation where Bitcoin has been huge and a lot of young people have a little more comprehension of it. They are willing to take a little risk on it. People had $1,000 and you hear friends who triple their money on Bitcoin in three weeks. It’s like, “I can take $1,000 to $3,000.” You look at our fund and be like, “You’re offering potentially 8%. I can Bitcoin or triple my money in three months. It’s going to take me nine years or whatever the case may be.” I’m curious if you’ve heard things like that or not heard things but if you know people have that mentality of, “I’m young. I got some money. Let me throw it at something like red or black on a roulette reel?” Bitcoin was a huge thing. I remember in our freshman year of college, this person we knew in college had to pay for it all himself. He ended up getting enough money to pay for four years of college through Bitcoin in a couple of weeks. We were all like, “That’s insane.” It was insane that none of us even looked into it because we were like, “We don’t know how to do that or start that.” If you’re not in finance, all of it is scary, even Bitcoin. I don’t think my generation wants to be as risky anymore. Maybe this is more personal in my generation. My parents, during the recession, struggled a lot. I was like, “I don’t want to be throwing my money at this because everything’s going to crash and then I’ll have no money.” For me, I don’t want to be mindless about it. That’s why real estate is more stable than crypto or the stock market but that might not be a generational thing. That might be my issue when I was younger. Are you looking for a quick one or a long and steady growth in an asset class that historically does well? If I was to talk to someone who had $1,000 and was looking to get started, I would want to know, “What is your goal for this $1,000?” If it’s to make $100,000 overnight, I don’t know what you’re going to do with that money. If you’re looking to start investing for your future self and I’m not even saying 60 or 59.5 but if you’re willing to put something in for long-term growth, it’s a good place to start. You asked about the stock market versus real estate and cryptocurrency. Chris, you better answer that because you’ve seen a few more cycles than us but what would you say would be the biggest difference between the three? Crypto is its animal. I’m not a believer at this point. I’m more of a, it’s a greater fool theory, meaning that you’re buying it and hoping that somebody is going to give you more money for it. It’s not backed by anything. It’s an asset. People will compare that to the US dollar but the US dollar has $300 million people paying taxes. The last time I checked, they own a lot of land, as well as oil, gas and a lot of other things. In real estate versus stocks, I would tell people to have a balanced portfolio. You shouldn’t go all in one or all in the other. Real estate is a fixed asset. It’s tangible. You can feel it, touch it and see it. You can also invest in Apple stock. Apple is a company that makes a lot of products. Most of us have an iPhone. You can hold that and say, “I invest in this company I produce.” If you know who Warren Buffett is, he always tells people, “Investing something that generates something,” whether you’re investing in farmland that produces goods that people buy or real estate that people can live in. That’s one of the major things that he’s always based it on and is extremely well from that. I don’t pick a dig between stocks and real estate because there’s a time and a place for both. I understand them but I don’t have the patience for stocks. I can’t watch the market every day and see what’s going on. You’re supposed to leave it in there but there should be things that you might want to do with it. Real estate is more of a long place flow. If you got a house there, you got to paint it every ten years or whatever the case may be but the house ain’t going anywhere. The market around it could change but that’s not going to happen overnight. In stocks, if something happens or there’s a world crisis or Elon Musk tweets something and the stock goes down 30%, you’re losing 30% of that stock because 1 guy does 1 tweet. Each one has its positives and negatives. That’s why you always want to keep money in different buckets and balance your portfolio. Is one more stable than the other or is it too different? If you look at them over a long period, they’re almost identical. If you look at any 30-year period, the returns between each one are going to be between 8% and 9%. Real estate has better tax benefits because it’s a depreciating asset. You can be more creative with real estate because you can do things called 1031 exchange, which rolls any taxes down the line wherein notes were a different type of asset class but real estate got many different avenues to it. You can buy stocks, options and things or short a stock. There are some creative ways you can do things with stocks but it’s also somewhat of a personal preference. People look at real estate as the sexier lifestyle of, “I own real estate.” It’s more of a talking point at dinner with somebody. It’s like, “You own 50 shares of this.” Who cares? If you say, “I bought this house on here that’s got this cool Victorian look to it with a nice covered porch.” People latch onto real estate more than they would. If you’re having dinner with somebody and you’re talking about your stock portfolio or real estate portfolio, people would be a lot more interested in your real estate than your stocks. That’s me but I don’t know.
CWS 212 | Real Estate

Real Estate: You shouldn’t go all in one or all in the other. (Chris)

  I don’t have the stats. I’m like, “If you look back several years, they’re about even.” I feel like most of the people in my life are related and unrelated. Outside of the doc that has come from someone working at a company pre IPO, I’d say most people get wealthy through the real estate from what I’ve seen and who I’m surrounded by. For me, I would choose real estate over stocks. Here’s the question I asked both of you. What is your favorite board game as a kid? We’re talking Monopoly. I hated that. I loved Monopoly. It took a long time. Stratego was another one I liked. Monopoly is you’re buying real estate. You’re trying to conquer certain areas to put hotels on it and crush your person by taking all their money from them. That’s what Monopoly is. What most people don’t realize is it’s a game about real estate. I did have another question and you may be touched on it a little bit but I know the recession was when I was younger, 2007, 2008. We’re in that again with how the housing market is going. If it were to fully crash as it did, how would that affect mortgage notes and all of us? When it comes to the notes that we’re buying, most of what’s happening is not to be things that would become available to us for a few years. What we’re looking at are assets because of 2007 and 2008. When something happens to housing, it’s a slow drip to make its way down to us. What’s different with what we invest in is if the real estate market crashes and people lose their jobs, do you think there’d be more or fewer people paying no mortgage? It’s less. That would mean there’d be more products for us. We’d have more opportunities to buy assets. That was my thought behind it but I didn’t know if there was a good deeper side. It’s also a different pause of the recession this time. The last time, people were being qualified for homes they had no purpose of buying, which led a lot of people to default on their loans. The next question is the question they say, “How many tennis balls will it take to fill a bus?” I don’t know if you’ve ever been asked any of those questions. The next one, I don’t expect you to know the answer but there are two questions. Can you guess how big the mortgage market is in the United States and then how big the distressed mortgage market is from a dollar value? Any idea? If you took everybody’s mortgage in the US, what would the total be? I have no idea. It has to be billions. What happens in the market is a leading indicator of what will happen to the mortgage. (Lauren) Click To Tweet It’s either $12 trillion or $16 trillion. The distressed mortgage market, is it separate or are we taking that? It’s separate. Only the ones that have 90 days or more behind. Isn’t that a less number? Maybe not. You can have an expensive house and not pay for it. That’s about $500 billion to $600 billion. I say that because it usually floats between 3% and 6% of the overall market. $15 trillion times 3% to 6%, $450,000 due, is $900 billion. The reason I mentioned that is we’re looking to raise $75 million. $75 million out of $600 billion is such a small drop in the bucket. Any major changes in the economic environment will have some impact on several loans and pricing but based on where we’re at, it won’t have that significance. It’s not like we’re going to be partying in the street and people are begging us to buy their loans. It would get back to a normal environment where the pricing has been a little higher over the last few years. We’d probably be able to get things for a little more discount because people want to move them from their books. What happens in the market is a leading indicator of what will happen to the mortgage. How much is a distressed mortgage note to buy than a regular one? Let’s take a $100,000 note. If they’re paying their mortgage, you’d still be able to get that at a discount. It might be anywhere from $0.85 to $0.95. I bet $85,000 to $95,000 is what you pay. If it was non-performing, you’d pay anywhere probably between $40,000 and $65,000. It’s a big difference. Doing that allows us to try and work something out with that person to try and keep them in their house. Are there bad mortgage note people that want to kick people out of their houses? Yes. I’m circling back to what one of my parents said. I feel like my dad brought that up and I was like, “Dad, I don’t know.” The interesting thing about that is if you buy it at the right price, it’s a win-win situation for everybody if you work out with the borrower. Most likely, it would be a better return on investment for you as the lender if you keep them in the house. The goal is to have you back in a year and we can see how many more questions you have for us. Your assignment is to learn what fractional lending is. If you want your mind to explode, there you go. The banks create money out of thin air. It is what it is. It’ll blow your mind. With that, thank you so much for joining us on this episode. If you enjoy the show, share it with a friend, subscribe or leave us a review. Until next time. Thank you, Toni. Thank you.

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